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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