Question : Net increase in working capital other than cash and cash equivalents will increase, decrease or not change cash flow from operating activities.
Option 1: Increase
Option 2: Decrease
Option 3: Both A and B
Option 4: None of the above
Answer (1)
19th Jan, 2024
Correct Answer: Decrease
Solution : Answer = Decrease
An increase in Working Capital will result in a decrease in cash flow from operating activities. The reason is that the increase in working capital is due to an increase in Current assets. Also, an increase in working capital, such as higher receivables or inventory, requires more funds tied up in operations, reducing the amount of cash available for operating activities.
Hence, the correct option is 2.
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