medium · Principles of Finance financial-statements-markets-wc
A company is growing revenue at 40% per year. Its Days Sales Outstanding (DSO) remains constant at 60 days.
How does this growth affect the firm's Net Working Capital and FCFF?
- Net Working Capital remains constant because the DSO ratio is stable, leaving FCFF unaffected.
- Net Working Capital increases, creating a persistent drag on FCFF.
- Net Working Capital decreases because the company is becoming more efficient at collecting revenue as it scales.
- FCFF increases because the increase in Accounts Receivable is added back as a non-cash revenue item.
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