When a portion of the firm's fixed assets are financed with current liabilities, the firm
A) has positive net working capital.
B) has negative net working capital.
C) has excessive amounts of current assets.
D) is in a low-risk position.

Question

Quizplus · Accepted Answer

When a portion of the firm's fixed assets are financed with current liabilities, it means that the firm has negative net working capital. This is because current liabilities need to be paid off in the short-term, whereas fixed assets represent long-term investments. This indicates that the firm may have trouble meeting its short-term financial obligations and may be in a riskier position.

When a Portion of the Firm's Fixed Assets Are Financed