Changes in Inventories
If inventories increased from one year to the next, the implication is that new inventories were purchased, which represents a drain on cash for the company (Exhibit 7.9). Conversely, if inventories decreased from one year to the next, the implication is that they were sold, representing cash inflow for the company.
Exhibit 7.9. When Inventories Increase, the Cash Impact is Negative
Source: Used with permission of Wal-Mart Inc.
Bottom LineWhen inventories increase, the cash impact is negative. Conversely, when inventories decrease, the cash impact is positive. |
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