Oracle Corporation says it will use customer advance payments to enhance cash flow and mitigate the amount of debt required to finance its AI infrastructure investment. We think investors should consider whether this, and other components of net working capital, are in-substance debt financing and adjust their analysis accordingly.
The standard approach of treating working capital as operating assets and liabilities for DCF valuation may not always be the best. In an interactive model, we demonstrate how receivables and payables (and similar working capital items) can be treated as financing items in an enterprise free cash flow DCF valuation.
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