Question

A(n) ________ in current assets _______ net working​ capital, thereby​ ________ the risk of insolvency. a....

A(n) ________ in current assets _______ net working​ capital, thereby​ ________ the risk of insolvency.

a. decrease, increase, increasing

b. increase, decrease, increasing

c. increase, increases, reducing

d. decrease, decreases, reducing

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Homework Answers

Answer #1

Net working capital is defined as excess of current assets over current liabilities and the same is computed as follows:

= Current Assets - Current Liabilities

If we increase the current assets, it means our net working capital will increase.

Further an increase in current assets will lead to improvement in liquidity ratios like current ratio, quick ratio etc.

Improvement in the liquidity ratio will ultimately lead in reducing the risk of insolvency.

So, the correct answer is option c.

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