Financial Modeling Working Capital

Financial Modeling Impact of Working Capital

In financial modeling, working capital changes can have a big impact on cash from operations, free cash flow, and the resulting valuation of a business. If a business experiences an increase in accounts receivable, it means it has not collected payment on a portion of its revenue, which causes cash flow to decrease.

Conversely, if a company has an increase in accounts payable, it means the company has expenses it has not paid for, which causes cash flow to increase. The net effect of changes in current assets and current liabilities is what makes up the working capital impact in financial modeling.


financial modeling Working Capital

Additional Questions and Answers

CFI is the official global provider of financial modeling and valuation analyst FMVA Designation. CFI’s mission is to help anyone become a world-class financial analyst and has a wide range of resources to help you along the way.

In order to become a great financial analyst, below are some additional questions and answers for you to explore further:

  • What are the types of financial models?
  • What is sensitivity analysis?
  • What is bookkeeping?
  • What are the most common valuation methods?

Example Excel Model

Below is a screenshot from one of CFI’s online analyst training and certification courses, offered 100% online.

To learn How to Build an Excel Model step-by-step, click on the image below.

financial modeling questions and answers

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