Changes in Working Capital or Non-Cash Working Capital?
Hi all,
Currently working on a DCF valuation for Spotify for a course project.
Looking at Spotify's current assets and liabilities, their cash & cash equivalents + short-term investments constitute about 80% of their total current assets. Hence, using "changes in non-cash working capital" in the FCFF calculation would lead to a way higher FCFF compared to when using "changes in working capital", since their current liabilities have been increasing a lot more compared to their non-cash current assets.
Which of the two would you guys advise me to use, considering the type of business Spotify is? I'm guessing I should just stick with the change in non-cash working capital.
Thanks a lot
You could cut it down the middle and just use cash required for operations. This is usually modeled around 2% of revenue. Just a suggestion, hope this helps a little.
Thanks for the reply! Do you mean splitting cash into operating cash (take a % of revenue) and excess cash, and deducting the excess cash from Current Assets?
If yes, is 2% a reasonable percentage to assume for operating cash for a company like Spotify, or perhaps a bit higher?
Yes, that is what I was suggesting. Normally 2% is normally what gets foretasted. However, if you feel like they need more cash to operate then model it between 3-5%.
Saepe numquam ullam et blanditiis rem. Et sint odit officia tenetur reiciendis a natus. Debitis magnam sunt sint enim aut.
Praesentium quam et soluta aut voluptatem quo ipsam. Expedita assumenda aut ut.
Et molestiae quibusdam repellendus. Quidem vero animi non illo alias nam temporibus eveniet. Hic cum ab ratione omnis sunt. Voluptate nihil expedita in ea expedita.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...