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In the Kaplan stduy text they have instructed to add the “SHORT TERM INVESTMENTS” to the overall total free cash flow value to get to the value of the firm.
if we add the Short term investments at the end does this mean that we dont need to add the finance income from it?
What is the reason for this? I’m a bit perplexed by this.
Free cash flow is cash available for the providers of finance. Any movement on short-term investments is treated like movements in working capital and therefore affects the free cash flow. (Mind you, I never actually remember a question mentioning short term investments in this context 🙂
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