Asked by Dangerously Loved on Jul 14, 2024
Verified
A firm's net working capital reflects the amount of funds required to support its day-to-day routine operations. The word net reflects the fact that the requirement is net of spontaneous financing.
Net Working Capital
The difference between a company's current assets and its current liabilities, indicating the short-term financial health and operational efficiency.
Spontaneous Financing
Financing that occurs naturally as a company operates, such as trade credit that increases as sales increase.
- Master the idea and components involved in working capital.
Verified Answer
JS
Jaspreet SidhuJul 18, 2024
Final Answer :
True
Explanation :
Net working capital is calculated by subtracting the current liabilities from the current assets. Spontaneous financing refers to funds generated by the firm's normal operations, such as trade credit from suppliers or an increase in accounts payable. Therefore, the net working capital requirement is calculated after accounting for spontaneous financing.
Learning Objectives
- Master the idea and components involved in working capital.