The cash flow effect from a change in Net Working Capital is always equal in size and opposite in sign to the changes in Net Working Capital.

Question

Quizplus · Accepted Answer

When there is a change in net working capital, there is a corresponding cash flow effect that is equal in size and opposite in sign. For example, if a company increases its accounts receivable, there will be a negative cash flow effect because cash is tied up in the accounts receivable, and the change in net working capital is an increase. Conversely, if a company decreases its accounts receivable, there will be a positive cash flow effect because the company is receiving cash, and the change in net working capital is a decrease.

The Cash Flow Effect from a Change in Net Working