Chapter 2: FCF

Operating Assets

Assets used to support daily business operations, including both current and long-term assets.

Non-operating Assets

Include investments and financial instruments that do not directly contribute to the company's operational activities.

Operating Current Liabilities

Short-term liabilities that arise from day-to-day operations, such as accounts payable and accrued expenses.

Net Operating Working Capital (NOWC)

A measure of a company's short-term liquidity, calculated as operating current assets minus operating current liabilities.

Free Cash Flow (FCF)

Cash generated after covering operating expenses and capital expenditures, available for investors.

Return on Invested Capital (ROIC)

A profitability ratio measuring how efficiently a company uses capital to generate profit, calculated as NOPAT divided by total net operating capital.

Market Value Added (MVA)

The difference between the market value of a firm and the book value of its equity, debt, and preferred stock.

Economic Value Added (EVA)

A metric that evaluates a company's financial performance by taking the NOPAT and subtracting the cost of capital used.

Positive EVA

Indicates that a company is generating value for its investors.

Negative EVA

Indicates that a company is not generating sufficient returns to cover its cost of capital.