A small company has current assets of $112,000 and current liabilities of $117,000. Which of the following statements about that company is most likely to be true?
A) Since net working capital is negative, the company will not have enough funds to meet its obligations.
B) Since net working capital is high, the company will likely have little difficulty meeting its obligations.
C) Since net working capital is very high, the company will have ample money to invest after it meets its obligations.
D) Since net working capital is nearly zero, the company is well run and will have little difficulty attracting investors.

Question

Quizplus · Accepted Answer

The fact that the company's current liabilities exceed its current assets means that it has negative net working capital. This suggests that the company may face difficulty in meeting its obligations, as it does not have sufficient funds at hand to cover its short-term debts.

A Small Company Has Current Assets of $112,000 and Current