Need help finding the right FCFE formula
I'm doing a valuation project for class and I'm trying to value a first year firm. I have projected the rest of this fiscal years growth as well as growth for the next 5 years. The problem is that all the FCFE formulas I've found require the change in working capital, problem is that this firm is new so there is no working capital from last year. So, I'd like to know if there is a FCFE formula that just takes into account working capital on a year by year basis rather than a change in net working capital.
If there isn't, then I'm open to suggestions as to how to get around this issue.
This isn't an issue...your starting working capital is 0...not really clear what your question is.
Hopefully I can clear this up. After doing some research I have found no formulas that do not include the change in net working capital. So I'd like to explain a little further. The company I'm valuing is very small. It has no liabilities and the only Net Working Capital it has is inventory. This is the company's first year and it's net working capital is $2274. I have projected next years NWC to be $2317. So basically I'd like to know if I should use $2274 as this years Change in NWC (2274 - 0) and $43 for next years change in NWC ($2317 - $2274)
Yes. Also your FCFE model has basically no relevance to a firm in its 1st year of existence.
Think about this for a minute. It's a start up firm and the only working capital item it has is 2,274 of inventory, of which it had none at the beginning of the year. How did it acquire this inventory? With 2,274 of cash which it required to fund operations.
Short answer is "yes", but dude, really try to understand what is going on here. You're trying to figure out how much cash the company used or generated which is not captured in your income statement. That's your working capital change.
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