Question

Higher working capital usually results in

(a) higher current ratio, higher risk and higher profits

(b) lower current ratio, higher risk and profits

(c) higher equity, lower risk and lower profits

(d) lower equity, lower risk and higher profits

Answer 1

(a) Working capital of a firm refers to the amount of current assets which are in excess over current liabilities. If a company has a higher working capital then there will be a higher current ratio (i.e. current assets over current liabilities), higher risk and higher profits.