If Net Working Capital Is Negative

question 42

Multiple Choice

If net working capital is negative:

• A) current assets are greater than current liabilities
• B) it represents the portion of fixed assets that are financed through long-term financing
• C) it represents the portion of fixed assets that are financed by current liabilities
• D) none of the above

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Definitions:

Earnings Quality

An assessment of the reliability and sustainability of a company's income, indicating the extent to which earnings are derived from core business activities versus non-recurring, unusual transactions.

Deferred Tax Liability

A tax obligation that a company owes but does not have to pay until a future date, typically arising from differences between accounting practices and tax laws.

Deferred Tax Asset

An accounting term representing taxes that have been overpaid or paid in advance, which can be used to reduce future tax liability.

Temporary Differences

Differences between the tax base of an asset or liability and its carrying amount in the balance sheet that will result in taxable or deductible amounts in the future.