CFAT Query--- Release of Working Capital

Remember Working Capital

capital investments call for working capital investments.It is inconcievable to run a machine without working capital..These  are outflows of money  and should be considered as such.When the project is closed the working capital investment will be recovered.This working capital  recapture is an inflow and should be considered as such

Thnx Mr. Sivaram for replying.

I am not able understand it. Why we do when there is no such cash inflow at the end in the form of WC like that of salvage value realised ??Please explain with simple example..

How investment in WC will be recovered at the end?

Cant explain  u in depth as i am also a student like you .it seems when the project is closed the stocks and Debtors will be realised and creditors paid  and the net value will be shown as inflows as the project is closed

ok tell me why there is a need to invest WC in the beginning when project is of long term?? How such WC investments is made in the beginning?

Mr Faiz

This was already explained that  to generate returns we need working capital apart from Fixed Assets .so initial investment will consist of Investment in Fixed Assets+Investment in Working Capital too namely Inventories

Originally posted by : Faiz Ahmed
	Thnx Mr. Sivaram for replying. I am not able understand it. Why we do when there is no such cash inflow at the end in the form of WC like that of salvage value realised ??Please explain with simple example..

 The better Answer would be because we are treating it as one time project forgetting the going concern concept

See yaar , We are investing in Fixed Assets so we expect returns only from fixed assets. I mean fixed assets contribution will be reflected in profits. So Why to bring inventories in long term contribution scene???  

I think i am asking too many questions.. I will be able to understand better when i get some logical examples..

Don't mistake me 

Tell me how you generate returns from Fixed Assets without deploying working capital? let me understand that from you first

No.... working capital will be there in business, but Fixed Assets will help in generating profits . So Fixed assets only should be taken no

Cap. budg. is all about how much particular investment has fetched you. So we should only see FA contribution... am i right??

To generate Inflows and returns you invest in Fixed assets Say Plant and Working Capital Inventories also  to generate returns from Fixed Asset.Fixed Asset by itself will not generate any profits

 Hey i got it.....  See When we invest in FA, we expect higher returns. In order to have higher returns, we will increase production which will increase debtors and so on.. Hence we take  WC as outflow in starting and at end we add back to CFAT bcz that cycled funds is released...

Now i understood completely..

Thnx for taking pains in explaning me patiently...

Thanks again for making me understand the same.

Faiz it is a pleasure in answering your querries and to the best possible knowledge i gained i used it for explainig  the fact remains that i learn more from you when u answer your querries and post some questions in the forum .Thank You Mr Faiz