FCFF - WC & FC

[goingsomethings]

Hi,
I usually mess up the FC and WC component of FCFF. Does anyone have a trick to remember what is included? I come from a nonfinance background, so it really isn’t intuitive to me..

 

[Yumi]

It depends on the contents given, you can use the following formula to come up with FC Inv and NWC
FC Inv = Capital expenditure - sales of assets
FC Inv = gross PPE of year 2012 - gross PPE of year 2011
FC Inv = net PPE of year 2012 - net PPE of year 2011 + depreciation of year 2012 - gain on assets sales of year 2012
Net WC = increase of inventory + increase of AR - increase of AP - increase of accruals expense
Although WC is often defined as CA minus CL, WC for CF and valuation purpose is defined excluding cash and short- term debt (which includes notes payable & the current portion of long-term debt).
Hope it helps

 

[rawraw]

I just think of it of how does it impact my cash?
Increase in AR? Decrease because people haven’t given me cash for income I’ve realized yet.
Increase in AP? Increase because I’m holding onto cash instead of paying someone
Increase in inventory? Decrease because I had to buy that stuff.
Just think, will this provide cash or be a use of cash?

 

[kobi]

Yumi wrote:
FC Inv = net PPE of year 2012 - net PPE of year 2011 + depreciation of year 2012 - gain on assets sales of year 2012

As far as I’m concerned, we do not remove gain on sale of assets from FCInv but entire proceeds from sale of assets.
Gain on sale is removed from NI and thus CFO.
Can someone confirm ?? (I’m not sure about proceeds)