Chapter 30, Problem 2PS

Components of working capital* True or false?

1. a. Companies with negative net working capital are usually in financial trouble.
2. b. Principal payments on long-term debt are shown as current liabilities if due within the next 12 months.
3. c. Accounts payable are usually a small fraction of the firm’s total liabilities.
4. d. Accounts receivable are usually the largest category of current assets.
5. e. Less profitable companies typically hold larger cash balances as a precautionary measure.
6. f. Well-managed companies invest the majority of their excess cash in short-term securities. They avoid the risks of investing in long-term bonds.