Lilly's Corporation Has Working Capital of $840,000, and Harmon Corporation

question 49

Multiple Choice

Lilly's Corporation has working capital of $840,000, and Harmon Corporation has working capital of $620,000. Which of the following statements is incorrect?

• A)Since Lilly's working capital exceeds Harmon's working capital, it is safe to conclude that Lilly is more liquid than Harmon.
• B)Since working capital is an absolute amount, other factors such as size of the company and materiality will help to determine liquidity of these two companies.
• C)If Harmon Corporation is smaller than Lilly or has lower current liabilities; Harmon could be more liquid than Lilly.
• D)None of the other answers are correct.

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Definitions:

Specialty Retailers

Stores or businesses that focus on specific product categories, offering a narrow but deep assortment of merchandise.

Long-term Loan Agreements

Long-term Loan Agreements refer to borrowing arrangements designed to be repaid over an extended period, typically exceeding one year, used mainly for financing significant projects or acquiring assets.

Covenants

Conditions imposed in agreements, especially in loan contracts, that set forth certain actions to be performed or avoided by the borrower.

Short-term Credit Agreements

Agreements between a borrower and a lender for loans that are typically due within one year or less.