Question: True or false? Changes in working capital are subtracted from net income on the cash flow statement.
- True
- False
Explanation
On the cashflow statement, changes in working capital are adjusted to reconcile net income to cash from operating activities. Increases in working capital (e.g., more inventory or receivables) reduce cash, so they are subtracted from net income. RevOps principles use cashflow analysis to understand liquidity, operational efficiency, and resource allocation. Accounting for working capital ensures an accurate picture of the company’s ability to fund operations and investments. Proper tracking helps guide strategic planning and financial decision-making.
Why the other options are incorrect
B) Changes in working capital do affect cashflow and must be subtracted or added depending on the direction of the change.
Source for verification
Cashflow Statement Basics
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