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The company generated an additional $1 billion in revenues that year through accounts receivable. They also...

The company generated an additional $1 billion in revenues that year through accounts receivable. They also spent $1 billion in cash to stock up on inventory (the company is decreasing the cash that it already had to buy the inventory). All else being equal, what is the change in net working capital in 2020

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Answer #1

Net working capital will be increased by $1 billion

Explanation:-Net working capital =Current assets- current liabilities

Given that additional 1 billion generated through accounts receivable ,therefore accounts receivable which is current asset increased by$1 billion

Another transaction given which says,Cash used to purchase inventory i.e, cash decreased and with same amount inventory increased.In other words we can say that one current asset decreased and at the same time another current asset increased.Therefore it will have no impact on net working capital

Hence in total,current assets increased by 1 billion and hence net working capital increased by $ 1 billion

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