Working capital will affect incremental cash flows if:
A) current liabilities change more than current assets.
B) current assets change more than current liabilities.
C) inventory changes from previous levels.
D) net working capital changes from previous levels.

Question

Quizplus · Accepted Answer

Net working capital, which is the difference between current assets and current liabilities, represents the short-term liquidity of a company. Any change in net working capital will affect cash flows, as it will impact the company's ability to meet its short-term obligations. For example, an increase in net working capital would indicate that the company is using more cash to finance its operations, while a decrease in net working capital would free up cash for other uses. Changes in current assets or liabilities individually may affect cash flows, but the net change in working capital is what matters for incremental cash flows.

Working Capital Will Affect Incremental Cash Flows If