Changes in Working Capital

Explanation: Changes in Working Capital (CFO) is a component of the Cash Flow from Operations (CFO) that measures the net increase or decrease in a company’s working capital accounts over a specific period. It reflects the change in the company’s short-term assets and liabilities, such as accounts receivable, inventory, accounts payable, and other current assets and liabilities.

Example: In FY23, TCS had changes in working capital to CFO of -4,217 crore. This negative value indicates that there was a net decrease of 4,217 crore in TCS’s working capital accounts during the fiscal year. It suggests that TCS may have experienced a reduction in its short-term assets or an increase in its short-term liabilities relative to its operating activities.

For instance, a decrease in accounts receivable or inventory or an increase in accounts payable would contribute to a negative changes in working capital to CFO. This could be due to factors such as improved efficiency in collecting payments from customers, better inventory management, or extended payment terms with suppliers.

Understanding changes in working capital to CFO is important as it provides insights into how effectively a company is managing its short-term liquidity and operating cycle. It helps investors and analysts assess the company’s ability to convert its operating activities into cash flow and identify potential areas for improvement in working capital management.

You can view the Changes in Working Capital for any company on Radar under Cash from Operations in the Cash Flow section.