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(Question #48, BPP revision Kit 2023)
“Which of the following statements concerning working capital management are correct?”
(1) Working captial should increase as sales increase.
Answer : (1) is true.
This question confuses me. It is not necessary that WC to be increased as sales increases, isn’t it?
thank you !
There is no rule saying that the working capital has to increase with extra sales. However the question does not say that it ‘must’ increase but that it ‘should’ increase.
That is true. If they have higher sales they they will have higher receivables, they will need to carry higher inventory to cope with the higher sales, and this will result in there being higher payables. So the working capital should increase.
I do explain this in my free lectures on the management of working capital.
Mr. Moffat I really appreciate your help, I understand it now. I will watch the lectures again.
Thank you !
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