Series 79 practice questioneasyFinancial Statement Analysis
A company’s net working capital is positive and increases year-over-year. What does this typically indicate about the company’s liquidity?
- AThe company is facing a cash shortfall
- BThe company has an improving liquidity position✓ Correct answer
- CThe company’s fixed assets are increasing
- DNet income is likely declining
Explanation
Why B — The company has an improving liquidity position
Rising net working capital signals stronger liquidity, as the firm has more current assets to cover short-term liabilities. Confusing this with asset increases or income changes could mislead analysis.
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