Series 79 practice questioneasyFinancial due diligence – working capital analysis
When performing financial due diligence in an M&A transaction, which of the following is MOST commonly reviewed to assess a target company's short-term liquidity position?
- ANet working capital✓ Correct answer
- BLong-term debt
- CTotal shareholder equity
- DGoodwill
Explanation
Why A — Net working capital
Net working capital (current assets minus current liabilities) measures a company’s ability to meet short-term obligations and is a primary focus in financial due diligence. Long-term debt and shareholder equity relate to capital structure, not liquidity, while goodwill is an intangible asset.
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