CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Which of the following will increase the net working capital of a company?
Issuing equity shares for cash increases net working capital because current assets rise while current liabilities stay unchanged. Repaying short-term loans or creditors lowers both sides equally, and buying machinery for cash reduces current assets.
- ARepaying a short-term bank loan from cash
- BPurchasing machinery for cash
- CIssuing equity shares for cash and holding the cashCorrect
- DPaying creditors from cash
Explanation
Net working capital = current assets minus current liabilities. Issuing shares for cash raises current assets without raising current liabilities, so it increases. Repaying a loan or creditors reduces both equally; machinery purchase for cash reduces current assets.
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