Series 79 practice questionmediumFinancial Statement Analysis
A positive change in working capital from one year to the next most likely indicates:
- AA decrease in inventory balances
- BA use of cash✓ Correct answer
- CAn increase in free cash flow
- DA reduction in accounts payable
Explanation
Why B — A use of cash
An increase in working capital is a use of cash, as more funds are tied up in inventory or receivables. Confusing this with a source of cash is a frequent test pitfall.
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