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Sir, wish you have good holidays.
2 things obsess me
at first,
why should Working capital increase as sales increase?
the second one is why Lower net operating cash flow is associated with shortening working capital cycle?
I’m stupid as 7 year-old-boy.
please, could you possibly explain to me about every detail as easily as 7 year old boy can understand.
i’m so sad about my stupidity…………….
1. Working capital is made up of inventory, receivables etc..
If a company sells more, then they will need to carry more inventory. If they see more then they will have bigger receivables.2. Lower net operating cash flow does not necessarily means a shortened working capital cycle. However lower operating cash flow results from lower profits and this is often because of lower sales – lower sales means lower working capital (the opposite of (1)) and therefore shorter working capital cycle.
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