How does a change in accounts payable affect Free Cash Flow?

A change in accounts payable directly influences Free Cash Flow because it reflects how much cash a company has at its disposal after accounting for operating expenses and capital expenditures. When accounts payable increase, it means the company is delaying payments to its suppliers. This deferral of cash outflow effectively conserves cash in the short term, leading to an increase in Free Cash Flow.

By postponing these payments, the company retains more cash within its operational budget, which can be used for other investments, reinvestment into the business, or to strengthen its liquidity position. Therefore, an increase in accounts payable is beneficial for Free Cash Flow as it represents cash that the company has not yet spent, enhancing its overall cash position.

While it's true that an increase in accounts payable does signify a potential obligation in the future, in the context of cash flow analysis, the timing of cash outflows—as captured by Free Cash Flow—is crucial. This means that the immediate effect of an increase in accounts payable is a positive impact on Free Cash Flow.