I'm asking in the context of finding change of NOWC for the calculating of free cash flows (for DCF purposes).
For the above context, I understand that NOWC = non-cash current assets - non-interest-bearing current liabilities.
My question is this: Is interest payables considered to be non-interest bearing? I guess technically it is given that it is not the debt itself (as the interest isn't the principal) but the interest...
I've never see the adjustment being made anywhere (most just take away accounts payable, deferred revenue etc.) But thinking about it from the literal definition - I would say you would need to service these interests to continue the operation of your firm.
Would appreciate helpful thoughts on this. Cheers!
NOWC = current assets that can be expected to turn into cash (including cash!) in 12 months (less short term financial investments) - current liabilities expected to be settled in 12 months (less loans/interest bearing liabilities). Interest payable is an interest expense that has occurred but has not yet been payed, it's an accrued expense. This payment will be settled within next 12 months.
Uh yeah.. pretty sure we take out cash. I am asking in the context of valuation and not the definition of NOWC per se. Thanks anyhow
About cash - there's room for debate. For valuation purposes, you're right. I don't understand well what's the problem you're having with interest payable. Under what circumstances would interest payable be interest bearing? BR
I appreciate your provision of the definition of interest payable. I am curious to know if interest payable will be included as a non-debt current liability for the purposes of calculating NOWC for valuation
Cash definitely not included..interest payable would personally exclude from operating
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