Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.

Question

Quizplus · Accepted Answer

Paying a payment on a long-term debt will decrease the net working capital of the firm, as it reduces the current liabilities. The current ratio (current assets / current liabilities) is greater than 1.0, which means the firm has sufficient current assets to cover its current liabilities. The other options, i.e., selling inventory at a profit, collecting a trade receivable, selling a fixed asset for book value, and paying a trade payable, will not affect the net working capital as they involve transactions within the current assets or current liabilities.

Which One of the Following Will Decrease the Net Working