Which one of the following statements concerning net working capital is correct?
A)The lower the value of net working capital the greater the ability of a firm to meet its current obligations.
B)An increase in net working capital must also increase current assets.
C)Net working capital increases when inventory is sold for cash at a profit.
D)Firms with equal amounts of net working capital are also equally liquid.
E)Net working capital is a part of the operating cash flow.

Question

Quizplus · Accepted Answer

Net working capital increases when inventory is sold for cash at a profit because cash (a current asset) increases, while inventory (another current asset) decreases, resulting in a net increase in current assets.

Which One of the Following Statements Concerning Net Working Capital