Lilly's Corporation has working capital of $840,000, and Harmon Corporation has working capital of $620,000. Which of the following statements is incorrect?
A)Since Lilly's working capital exceeds Harmon's working capital, it is safe to conclude that Lilly is more liquid than Harmon.
B)Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies.
C)If Harmon Corporation is smaller than Lilly or has lower current liabilities; Harmon could be more liquid than Lilly.
D)None of the other answers are correct.

Question

Quizplus · Accepted Answer

Working capital measures the excess funds the company will have available for operations, excluding any new funds it generates during the year. The numbers themselves say little. Whether each company's working capital is sufficient or not depends on such factors as the industry in which each company operates, each company's size, and the maturity dates of its current obligations.

Lilly's Corporation Has Working Capital of $840,000, and Harmon Corporation