If the initial current ratio for a ﬁrm is greater than one, then factoring receivable at 90% of their book
value will decrease net working capital.

Question

Quizplus · Accepted Answer

Factoring receivables at 90% of their book value will decrease the firm's current assets, specifically accounts receivable. This will result in a decrease in the current ratio, and if the initial current ratio was greater than one, it means the firm had more current assets than current liabilities. Therefore, decreasing the current assets will decrease the excess current assets or the net working capital.

If the Initial Current Ratio for a ﬁRm Is Greater