A ﬁrm with negative net working capital ____________________.
A) Is technically bankrupt.
B) Has no cash on hand.
C) Needs to sell some of its inventory to correct the problem.
D) Has more current liabilities than current assets.
E) Most likely will not run short of cash over the next six months.

Question

Quizplus · Accepted Answer

Negative net working capital means that the firm has more current liabilities than current assets. This does not necessarily mean the firm is bankrupt, but it does indicate some financial instability. The firm may need to sell some of its inventory to generate cash and improve its working capital position. However, having negative net working capital does not guarantee that the firm will run short of cash over the next six months.

A ﬁRm with Negative Net Working Capital ____________________