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Hiya
PLs can you clarify:
Q: G’s net working capital is most likely to increase in which of the following situations?
-Payments to suppliers are delayed
-period of credit to customers is reduced
-non current assets are sold
– inventory levels are increasedA: if non current assets are sold.
Can you explain why this would be the only likely reason to increase the net working capital?
Thanks 🙂
If payments to suppliers are delayed, then payables increase and therefore WC will decrease.
If period of credit to customers is reduced, then receivables decrease and therefore WC will decrease.
If inventory levels are increased then either payables will increase (if bought on credit) or cash will decrease (if bought for cash). In both cases, WC will therefore not change.
If non-current assets are sold, then cash increases and therefore WC increases.
Why an increase in cash increases WC,because CA-LL=WC,IF we increase CA(Cash),the answer will be a smaler WC,PLEASE Help
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