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Hi
I hope you can clarify the following multiple choice question for me:
G’s Net working capital (ie current assets- current liabilities) is most likely to increase in which of the following situations?
– payments to suppliers are delayed
– period of credit extended to customers is reduced
– non current assets are sold
– inventory levels are increasedAnswer: non current assets are sold
please can you kindly explain why this sale would increase the net working capital if non current assets isnt part of the regular current assets/current liabilities used to calculate the net working capital?
If non-current assets are sold then either cash is received, or (if sold on credit) then receivables increase.
Both cash and receivables are part of the working capital and therefore working capital will increase.
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