A small company has current assets of $1 112 000 and current liabilities of $717 000. Which of the following statements about that company is most likely to be true?
A)Since net working capital is nearly zero, the company is well run and will have little difficulty attracting investors.
B)Since net working capital is negative, the company will not have enough funds to meet its obligations.
C)Since net working capital is high, the company will likely have little difficulty meeting its obligations.
D)Since net working capital is very high, the company will have ample money to invest after it meets its obligations.

Question

Quizplus · Accepted Answer

Net working capital is calculated by subtracting current liabilities from current assets. In this case, the net working capital is $395,000 ($1,112,000 - $717,000). A positive net working capital indicates that the company has enough current assets to meet its current obligations. Therefore, choice C is the most likely statement to be true. Choices A, B, and D are not accurate.

A Small Company Has Current Assets of $1 112 000