Explain why the increase in payables and the change in payment terms contributed to the increased in…

Interpreting the role of accounts payable in cash flow from operations

AB InBev is the world’s largest brewer. An abbreviated version of the operating activities section of the company’s statement of cash flows appears below:

Cash flows from operating activities (million US dollars)

2011

2010

Profit

7,959

5,762

Interest, taxes and noncash items included in profit

7,420

8,503

Cash flow from operating activities before changes in working capital and use of provisions

15,379

14,265

Change in working capital

1,409

226

Pension contributions and use of provisions

(710)

(519)

Interest and taxes (paid)/received

(3,998)

(4,450)

Dividends received

406

383

Cash flow from operating activities

12,486

9,905

Elsewhere in the annual report, management reveals that trade payables increased in 2011 because of higher capital expenditures. Also, these payables have, on average, longer payment terms than payables from previous years.

Required

Explain why the increase in payables and the change in payment terms contributed to the increased in cash flow from operations in 2011. What other factors contributed to the increase?

 

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