Question: The program put an investment in my financial outflows after the completion of the investment and in the following years of the project. What it is ?
Answer: Investments include investments in fixed and working capital throughout the life of the project.
1. After the completion of the investment in the cash flow projections, the program introduces new investments in fixed assets from the project accumulation, of course, if there are fixed assets with a lifespan shorter than the project life.
2. The program also includes investments in the increase of working capital in the Outflow of Financial Flow, because working capital depends on the volume of production and the type of activity. The program takes this into account through the working capital turnover ratio, which shows the ratio of income and required working capital. Working capital consists of: stocks of materials, semi-finished products, finished products in stock and short-term receivables for delivered goods. Therefore, if the volume of production increases in the years of the project, it is logical to increase the required working capital. For example, utility companies, which charge monthly for services, have a turnover ratio of 12, and for example in a manufacturing company where the production cycle lasts 2 months (from purchase to collection), the turnover ratio is, if these costs are dominant, about 6 In agriculture, the turnover ratio is much lower. In practice, the coefficients may be higher if the material or goods are procured with deferred payment, and the products are sold in advance. There are also more precise calculations of the required working capital, which specifically calculates and collects the necessary working capital for materials, energy, salaries, financial obligations, … Existing companies usually estimate working capital based on statistics from previous years and planned activities in the coming year . Another reason for the increase in working capital is estimated inflation, which increases both revenues and expenditures.
