If the firm’s working capital increases, then: a- it should be subtracted from the cash flows...
If the firm’s working capital increases, then:
a- it should be subtracted from the cash flows since it is a cash outflow.
b- it should be subtracted from the cash flows since it is a cash inflow.
c- it should be added from the cash flows since it is a cash outflow.
d- it should be added from the cash flows since it is a cash inflow.
Homework Answers
Option a is correct
If the firm working capital increases, then: it should be subtracted from the cash flows since it is a cash outflow
> Working capital increase / decrease will have an effect on operating cash flows
> If working capital increases, it will reduce the operating cash flows
> If working capital decreases, it will increase the operating cash flows
> Working Capital = Current Assets - Current Liabilities
> If current assets are more than current lianilities, it means you have more to receive than to pay, it means cash outflow is more and it will reduce operating cash flows
> If current assets are less than current lianilities, it means you have more to pay than to receive, it means cash outflow is less and it will increase operating cash flows
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