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      Question

      If the current ratio of a company is exactly 1, what

      will be its Net Working Capital (NWC)?
      A Positive Correct Answer Incorrect Answer
      B Negative Correct Answer Incorrect Answer
      C Nil Correct Answer Incorrect Answer
      D Neutral Correct Answer Incorrect Answer
      E None of the above Correct Answer Incorrect Answer

      Solution

      • Net Working Capital (NWC) = Current Assets – Current Liabilities. • Current Ratio = Current Assets ÷ Current Liabilities. When the current ratio = 1, it implies: Current Assets=Current Liabilities Therefore: NWC=Current Assets – Current Liabilities= 0 This means the company has just enough current assets to cover its short-term liabilities, leaving no surplus (nil NWC).

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