Which of the following is most likely to occur if a firm over-invests in net working capital?
A) The current ratio will be lower than it should be.
B) The quick ratio will be lower than it should be.
C) The return on investment will be lower than it should be.
D) The times interest earned ratio will be lower than it should be.

Question

Quizplus · Accepted Answer

Over-investing in net working capital (current assets minus current liabilities) can lead to excess funds being tied up in assets that are not generating returns, thus potentially lowering the return on investment (ROI). This is because the firm is not utilizing its resources in the most efficient manner to generate profits.

Which of the Following Is Most Likely to Occur If