A firm that is extremely efficient in managing current assets while maximising the free financing provided by accounts payable will have a lower current ratio and a lower net working capital than a less efficient firm.

Question

Quizplus · Accepted Answer

This is because a lower current ratio (current assets divided by current liabilities) indicates that the company is using its current assets effectively to pay off its current liabilities. Additionally, a lower net working capital (current assets minus current liabilities) indicates that the company is able to manage its current assets efficiently while relying on the financing provided by accounts payable.

A Firm That Is Extremely Efficient in Managing Current Assets