A change in Operating Current Assets, ceteris paribus, impacts Price per Share in terms of affecting the total net operating capital that will trigger all the other changes until the market price is affected. The total net operating capital is arrived is the sum of net operating working capital (NOWC) and Net PPE or Net Plant Property and Equipment. This means that as one increases the net operating working capital, the total net operating capital is also increased.
The resulting total net operating capital of two periods will in turn determine the change in the said account and any increase in the account total will represent the investment in capital. The higher therefore the inc...
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...rease in operating current assets, the greater will be in amount of investment in capital. To determine the market price per share of a stock there is need to get the total value of the corporation and then divide the same amount to the number of outstanding shares. To get the value of the corporation there is a need to find the value of operations and the value of non-operating asset.
In order to get the value of operations, there is need to determine the value of free cash flows (FCF). To get value of the FCF, there is a need to have the value of net operating profit after tax (NOPAT) and deduct from the same, the amount of investment in capital that was derived earlier as a function of changes in Operating Current Assets. Therefore it could be concluded that the higher the amount of net operating current assets, the greater would be the amount of investment in capital, and the less would be the amount of free cash flow.
The less amount of free cash flow, the less would be the amount of value of operations, and the less would be the value of equity and finally the less would be value of market price per share of a stock. In simple terms, it means that increasing operating current assets is an investment that would involve use of funds and therefore would decrease free cash flow that would lower of the value of corporation. Lowering the value of the corporation, lowers value of equity and market price per share of stock.
Work Cited: Brigham and Houston, Fundamentals of Financial Management, Thomson South Western, US, 2002