Asked by Chelsey Wheatley on May 26, 2024
Verified
Dollar amounts of working capital are difficult to assess when comparing companies of different sizes or in comparing such amounts with industry figures.
Working Capital
The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency of the business.
Industry Figures
Statistical data or benchmarks representing the performance, trends, and norms within a specific industry.
- Grasp the concept of working capital and its importance for short-term financial assessment.
Verified Answer
SB
Scott BurlinghamMay 31, 2024
Final Answer :
True
Explanation :
Dollar amounts of working capital can be misleading when comparing companies of different sizes because larger companies generally require more working capital to operate. Additionally, industry figures may not reflect the specific needs and strategies of individual companies within the industry. It is often more useful to analyze working capital ratios (such as current ratio or quick ratio) which provide a standardized measure of a company's liquidity position.
Learning Objectives
- Grasp the concept of working capital and its importance for short-term financial assessment.
Related questions
A Balance Sheet Shows Cash, $75,000; Marketable Securities, $115,000; Receivables ...
An Advantage of the Current Ratio Is That It Considers ...
The Ratio of the Sum of Cash, Receivables, and Marketable ...
The Excess of Current Assets Over Current Liabilities Is Referred ...
Dratif Corporation's Working Capital Is $33,000 and Its Current Liabilities ...