IDEAS home Printed from https://ideas.repec.org/p/col/000463/003782.html
   My bibliography  Save this paper

Why We Subtract the Change in Working Capital when Defining Cash Flows? A Pedagogical Note

Author

Listed:
  • Ignacio Velez-Pareja

Abstract

In this short teaching note I explain why we subtract the change in working capital from the proper item (Earnings before interest and taxes (EBIT) or Net income) in the Income Statement. I show in detail how departing from the sales revenues and the cost of goods sold we have to subtract the change in working capital. This explanation might be seen as unnecessary given it is a common practice. However, my experience in teaching this subject indicates that some additional explanations are needed.

Suggested Citation

  • Ignacio Velez-Pareja, 2005. "Why We Subtract the Change in Working Capital when Defining Cash Flows? A Pedagogical Note," Proyecciones Financieras y Valoración 3782, Master Consultores.
    • Handle: RePEc:col:000463:003782
    as

    Download full text from publisher

    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=718741
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Cash flows;

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000463:003782. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ignacio Velez (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.