A firm starts its year with a positive net working capital. During the year, the firm acquires more short-term debt than it does short-term assets. This means that:
A) The ending net working capital will be negative.
B) Both accounts receivable and inventory decreased during the year.
C) The beginning current assets were less than the beginning current liabilities.
D) Accounts payable increased and inventory decreased during the year.
E) The ending net working capital can be positive, negative, or equal to zero.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. If a firm acquires more short-term debt (increasing current liabilities) than it does short-term assets, this will reduce net working capital. However, without knowing the exact amounts or the initial state beyond being positive, it's impossible to determine if the ending net working capital will be positive, negative, or zero. It depends on the magnitude of the changes in assets and liabilities.

A Firm Starts Its Year with a Positive Net Working