Seen it both ways. Some say when computing the change in NWC don’t include cash. Some say do. And in the summer, some say the jungle comes alive, and steals the souls of men…
I have never seen not including Cash as a component of Working capital… I mean, considering that working capital is the day to day capital used in a business, cash is pretty much the definition of that isnt it 
Normally should include cash.
But when you calculate free cash flow, the NWCInv should not include cash, equivalents, notes payable, and current portion of debt (short term debt). the portion of WC that you spent cash to buy but that have not been accounted for in Net Income.
I totally agree. I think it might be people getting mixed up with Net Operating Assets.
Thanks!
No, no cash. In all the practice problems in the book you are basically only using A/R and A/P and things like that. Don’t use cash.
You’re trying to account for OPERATING assets and liabilities (part of daily business) when calculating NWC. Cash and marketable securities are considered NON-OPERATING assets and are not included in calculating NWC.
Change in cash is actually the end-product (the usage) of FCFs to if you use it in FCFs computations you would be doublecounting.
Ignore cash and ST debr in NWC
Agree. NWC is different from NWCInv. I think we all know what the question really meant to ask…
The answer is - it depends.
If you’re calculating change in working capital for the purpose of a DCF or Net Operating Assets - then don’t include cash. Cash is the result of a DCF (i.e., cash flow), therefore you don’t include the answer in the calculation. Make sense?
If you need to determine a ratio or something for the purpose of comparing the liquidity or efficiency of a company (e.g., current ratio), then yes, include the cash.
best answer ! Thx!
“When finding the net increase in working caital for the purpose of clclating free cash flow, we define working capital to exclude cash and cash equivalents as well as notes payable and the current portion of long-term debt. Cash and cash equivalents are exclded becaus a change in cashis whatwe are trying to explain. Note payable ad the curret portion of long-term debt are excluded bcause they are liabilities with explicit interest costs that make them financing items rather than operating items.” – Book 2 page 198.