a firm's sales grow, its current assets also tend to increase For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases.

Question

Quizplus · Accepted Answer

The statement is true as an increase in sales generally leads to an increase in current assets like inventories, which in turn leads to more accounts payable. These spontaneous liabilities reduce the need for additional financing, hence reducing the AFN.

A Firm's Sales Grow, Its Current Assets Also Tend to Increase