Which one of the following statements concerning net working capital is correct?
A) The greater the net working capital, the greater the ability of a ﬁrm to meet its short-term obligations.
B) The change in net working capital is equal to current assets minus current liabilities.
C) Depreciation must be added back to current assets when computing the change in net working capital.
D) Net working capital is equal to long-term assets minus long-term liabilities.
E) Net working capital is a part of the operating cash ﬂow.

Question

Quizplus · Accepted Answer

Net working capital is the difference between a firm's current assets and current liabilities. It measures a firm's ability to meet its short-term obligations. A higher net working capital means a firm has more current assets than current liabilities, which indicates a better ability to pay off short-term debts.

Which One of the Following Statements Concerning Net Working Capital