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Why can it be misleading to use a firm's working capital to discuss cash flow without further qualification

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 7QTD

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Why can it be misleading to use a firm's working capital to discuss cash flow without further qualification

Expert Solution

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Working capital and cash flows are the important aspects of an organization that helps an investor to analyze company’s financial performance. Net positive working capital indicates that the company possesses sufficient current assets to pay off its short-term debt.

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