Question

Over the past year, a firm increased its current assets and decreased its current liabilities. As a result, the firm's net working capital:A) IncreasedB) DecreasedC) Remained constantD) Could have either increased, decreased, or remained constant.

Answer 1

Answer:

A

Explanation:

Net working capital is the difference between current assets and current liabilities.

To understand better, let us assume that the current assets of a company is $50 million and the current liabilities is $10 million. The net working capital is $40 million

If the company increased current assets to $70 million and reduced current liabilities to $5 million. the net working capital is $65 million

So, net working capital increases when a firm increases its current assets and decreases its current liabilities