To quote this website: https://www.oldschoolvalue.com/blog/valuation-methods/working-capital-free-cash-flow-fcf/
"The operating parts of the asset side of working capital include: Accounts receivables, Inventories, Prepaid expenses, and some uncommon current assets found in the financials. Increasing any of these requires the use of cash.
Current liabilities also include debt which is not an operating factor of the business. (Debt is strictly a financing choice for the business.) The ones that are categorized as operations on the liabilities side are: Accounts payable & accrued expenses, Deferred revenue, Income taxes payable, and some uncommon current liabilities found in the financials. Increasing any of these delays the use of cash."
What I don't understand is how something like increasing A/R would require the use of cash (unless debt was actually bought with cash). For example, if A/R was debited, that means Service Revenue is credited, and thus there is no change to the Cash account, so how is cash being used? I understand that the receival of cash is delayed, but the cash drain does not make sense. Also, when it says "debt is not an operating factor of the business", why is A/P included as an operating liability if it is technically debt? I thought we were supposed to exclude any non-operating liabilities from this calculation of working capital?