Which of the following actions will cause a firm's net working capital to increase?
A)The firm uses more trade credit.
B)The firm increases its inventory in anticipation of seasonal sales.
C)The firm pays off a short-term bank loan with cash.
D)All of these will cause a firm's net working capital to increase.

Question

Quizplus · Accepted Answer

Increasing inventory will increase a firm's current assets and hence its net working capital. Using more trade credit will increase accounts payable, which is considered a current liability and will decrease net working capital. Paying off a short-term bank loan with cash will decrease cash and increase net working capital only if the loan was considered a current liability.

Which of the Following Actions Will Cause a Firm's Net