Help need on change in working capital!

[skywalker87]

Hello out to all fellow CFA holders and takers,

I have a question on Change in Working Capital. I can understand that:

1. FCFF = CFO + Int (1-T) - FC Inv.

2. CFO = EBIT + Depreciation Expense - Taxes

3. Change in Working Capital = Current Assets - Current Liabilities.

Okay here comes the question:

How do i calculate “Change in Working capital” with only Cash Flow statement and Profit and Loss statement?

I am confused by my FCFF will not be affected by Cash Flow from Financing? Is that suppose to be the case?

[S2000magician]

@skywalker87

Hello out to all fellow CFA holders and takers

Howdy!

@skywalker87

I have a question on Change in Working Capital. I can understand that:

1. FCFF = CFO + Int (1-T) - FC Inv.

2. CFO = EBIT + Depreciation Expense - Taxes

3. Change in Working Capital = Current Assets - Current Liabilities.

Okay here comes the question:

How do i calculate “Change in Working capital” with only Cash Flow statement and Profit and Loss statement?

First, your formula for change in working capital is incorrect. Properly,

Working capital = Current assets – Current liabilities

Δworking capital = Δcurrent assets – Δcurrent liabilities

It’s easiest to compute Δworking capital from two successive balance sheets, but you could do it with a cash flow statement if CFO were computed using the indirect method, as it will show the changes to current assets (don’t forget the change to cash: the final value) and the changes to current liabilities.

@skywalker87

I am confused by my FCFF will not be affected by Cash Flow from Financing? Is that suppose to be the case?

If you have inflows from financing (selling bonds or issuing stock), you still owe that money back to those who provided it (as a liability (bonds) or equity (stock)), so it doesn’t qualify as free cash flow to the firm.