Question

A(n) _________ in current liabilities _________ net working capital, thereby _________ the risk of technical insolvency. (a) decrease; increases; increasing (b) increase; decreases; increasing (c) increase; increases; reducing (d) decrease; decreases; reducing

Answer 1

An increase in current liabilities decreases net working capital, thereby increases the risk of technical insolvency. Thus the option (B) is correct.

What is Working Capital?

Working capital refers to the current assets minus current liability. It tells about company's day to day operation and indicates about financial capacity  to pay its debt within a year.

Increase in the current liabilities implies that there is a decrease in working capital. Therefore, it implies that company has increased its debt which can result in the risk insolvency.

Thus the option (B) is correct.

Learn more about Working capital here:

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