Question

Why is change in net working capital almost always positive at the end of the project?

Answer 1

The net working capital can be defined as current assets minus current liabilities.

At the end of every project, the change in net working capital is almost and always positive because all the current liabilities are settled and paid off and all the revenues of the current assets, which involves the finished inventories, semi-finished inventories and raw-materials and allied inventories, got released by disposing the same.

Thus, to say that all the assets are converted in cash and no liabilities exists against the cash so released.

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Net working capital or working capital is defined as current assets minus current liabilities. Therefore, a change in the total amount of current assets without a change of the same amount in current liabilities will result in a change in the amount of working capital