A company that borrows $1 million short term and invests the proceeds in inventory will see no change in its net working capital.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Borrowing $1 million increases both the company's current liabilities (due to the loan) and its current assets (due to the increase in inventory), leaving the net working capital unchanged.

A Company That Borrows $1 Million Short Term and Invests