Increased needs for net working capital are:

Question

Quizplus · Accepted Answer

Increased needs for net working capital are recognized in pro forma balance sheets. This is because the pro forma balance sheet is prepared to project how changes in the company's operating, investing and financing activities will affect the company's financial position. As net working capital is an important component of a firm's financial position, any increase in the company's needs for net working capital should be reflected in the pro forma balance sheet.

Choice B is incorrect as increased needs for net working capital cannot be totally absorbed by retained earnings. Retained earnings are the profits that a company has earned and retained over time, they cannot be used to finance increases in net working capital.

Choice C is partially correct as increased needs for net working capital can be financed with short-term debt, but this is not always the case. Companies may choose to finance their increased net working capital needs with a variety of funding sources depending on their specific circumstances.

Choice D is incorrect as ignoring changes in net working capital is not a best practice. Changes in net working capital have a significant impact on a company's cash flow and financial position, and ignoring them can lead to inaccurate financial statements and poor decision making.

Increased Needs for Net Working Capital Are