Working capital investment in appraisal

Investment appraisal normally includes the incremental working capital caused by a project. An increase is a cash outflow; a decrease releases cash. Include changes in the required balance, rather than charging the entire balance every year. The initial amount may be needed before trading starts, and later requirements may depend on forecast sales or costs. At project end, include only the amount expected to be recoverable; recovery is not guaranteed if inventory or receivables lose value. Avoid also counting the same balance as a separate operating expense.