Net Working Capital and Cash Flows

This problem tests whether a candidate understands the link between accrual accounting and actual cash movement on the cash flow statement. It focuses on net working capital, which reflects the cash tied up in operating assets and operating liabilities, and asks the candidate to think through why changes in receivables, inventory, payables, and other operating accounts can make cash flow differ from net income. Interviewers ask this because strong analysts must be able to explain where cash is coming from or going to, not just report earnings, and to connect changes in the balance sheet to operating cash flow in a clear, logical way.