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Impact of changes in Working capital on Project cash flow

How do changes in working capital affect project cash flows?

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Working capital and project cash flow.

How do changes in working capital affect project cash flows?

Working capital:

There are two terms denoting the working capital:
1. Gross working capital and
2. Net working capital.

Gross working capital means the amount invested in the current assets of the company.Net working capital means the difference between the current assets and current liabilities. If the current assets are more than the current liabilities, then it is positive working capital. Otherwise, it is negative working capital. Working capital is the measure of company's solvency, its ability to pay its suppliers without any delay.

The difference between the working capital of two reporting periods is called the change in working capital.
Current assets comprises of

1. Accounts receivable
2. Inventory
3. Cash
4. Marketable securities

Current liabilities include:
1. Bills payable
2. Sundry creditors
3. Short term loan
4. Bank overdraft.

Example: If the project's requirement of working capital is ...

Solution Summary

The answer describes meaning working capital, gross working capital,net working capital, components of working capital and also clearly explains the impact of changes in working capital in the project cash flow.