A firm can reduce net working capital by substituting long-term financing, such as bonds, with short-term financing, such as an one-year notes payable.

Question

Quizplus · Accepted Answer

Substituting long-term financing with short-term financing reduces the firm's current liabilities (assuming the short-term financing is classified as such), which can decrease net working capital since net working capital is calculated as current assets minus current liabilities.

A Firm Can Reduce Net Working Capital by Substituting Long-Term