Question

Question 46 4 pts What is the difference between net working capital and cash? Will net capital always increase when cash increases? B IV AA- IEE 111 **, SE 2 x 12pt Paragraph O words MacBook Pro

Answer 1

Net working capital is a reflection of differences between current assets and the current liabilities of the company and it is a reflection of how better the company is able to manage with current asset as well as current liability in order to stay liquid.

cash flows of the company are related to ultimate liquid position and it is generally quick asset because it is completely realizable in its fair value and it can be liquidated anytime as it is a mode of exchange so net working capital will be a combination of various assets which may be in the form of cash or which may be in the form of securities which can be converted into cash within our smaller period of time but this does not include all securities which are cash so net working capital maybe including various kinds of bills payable and bills receivable whereas it can also reflect other assets like marketable securities along with inventory so, it is generally assets which are reflecting liquidity within a shorter period of time but cash is generally the most liquid asset and hence working capital and cash are different things.

Yes,working capital will be increasing when the cash will be increasing and it will mean that cash is a part of current asset and when the current asset will be increasing, there would be a higher amount of net working capital.