Which one of the following will increase the value of a firm\'s net working capi

Question

Which one of the following will increase the value of a firm's net working capital? Answer using cash to pay a supplier depreciating an asset collecting an accounts receivable purchasing inventory on credit selling inventory at a profit Which one of the following will increase the value of a firm's net working capital? using cash to pay a supplier depreciating an asset collecting an accounts receivable purchasing inventory on credit selling inventory at a profit using cash to pay a supplier depreciating an asset collecting an accounts receivable purchasing inventory on credit selling inventory at a profit

Explanation / Answer

NWC = CA-CL

1. using cash to pay a supplier : CA & CL are reduced by same amount. So No change in NWC

2. depreciating an asset : No change in CA or CL. SO No change in NWC

3. collecting an accounts receivable : in CA, Cash is increased but Acct Rx is reduced by same amount. So No change in NWC

4. purchasing inventory on credit: Inv increases & Acct Payable increases. So No changein NWC.

5. selling inventory at a profit : Cash is increased by Profit margin while Inventory is reduced by cost of Inv. SO NWC increases by Profit margin.

So ANs is "selling inventory at a profit "

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