Which one of the following statements concerning net working capital is correct?
A) A firm's ability to meet its current obligations increases as the firm's net working capital decreases.
B) An increase in net working capital must also increase current assets.
C) Net working capital increases when inventory is sold for cash at a profit.
D) Firms with equal amounts of net working capital are also equally liquid.
E) Net working capital is a part of the operating cash flow.

Question

Quizplus · Accepted Answer

Net working capital increases when inventory is sold for cash at a profit because it converts inventory (a current asset) into cash without affecting current liabilities, thereby increasing the difference between current assets and current liabilities.

Which One of the Following Statements Concerning Net Working Capital