Question

Net working capital is negative if: Current assets are purchased only with current liability funding Current...

Net working capital is negative if:

Current assets are purchased only with current liability funding

Current assets are purchased with both current and long-term funding

Current liabilities are used to purchase long-term as well as current assets

Fixed assets are purchased with current liability financing

None of the answers provided are correct

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Answer #1

Answer: Current liabilities are used to purchase long-term as well as current assets.

Net working capital represents the excess of current assets over current liabilities. If current liabilities were used only for purchasing assets, total current assets would be greater than or equal to current liabilities. However, if current liabilities are also used to finance long-term needs, current assets would be less than current liabilities, leading to negative working capital.

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