If OWC has decreased between two periods, what does this indicate about cash?

If OWC has decreased between two periods, what does this indicate about cash?

• A. No impact on cash.
• B. Cash has been released/provided to the company
• C. Cash used to pay down debt
• D. Cash remains unchanged in working capital

Answer: (B)

A decrease in operating working capital frees cash from the day-to-day operations. When operating working capital (...) declines, less cash is tied up in assets like accounts receivable and inventory, or less cash is tied up in liabilities like payables. This net release shows up as cash inflow, meaning cash has been released/provided to the company. It wouldn’t be interpreted as no impact, cash used to pay down debt, or cash unchanged, since those describe other parts of the cash flow picture.

A decrease in operating working capital frees cash from the day-to-day operations. When operating working capital (...) declines, less cash is tied up in assets like accounts receivable and inventory, or less cash is tied up in liabilities like payables. This net release shows up as cash inflow, meaning cash has been released/provided to the company. It wouldn’t be interpreted as no impact, cash used to pay down debt, or cash unchanged, since those describe other parts of the cash flow picture.