At the beginning of the year, a firm has current assets of $313 and current liabilities of $217. At the end of the year, the current assets are $463 and the current liabilities are $257. What is the change in net working capital?

Question

BlackTom AI · Accepted Answer

Net working capital (NWC) equals current assets minus current liabilities. Change in NWC over a period can be found either by computing beginning and ending NWC and subtracting, or by taking the change in current assets minus the change in current liabilities.

Relevant knowledge and concepts:
1. NWC = Current Assets − Current Liabilities.
2. Change in NWC = (Ending CA − Beginning CA) − (Ending CL − Beginning CL) = Ending NWC − Beginning NWC.

Step-by-step calculation (method 1: compute NWC at each date):
- Beginning NWC = Beginning Current Assets − Beginning Current Liabilities
  = $313 − $217
  = $96.
- Ending NWC = Ending Current Assets − Ending Current Liabilities
  = $463 − $257
  = $206.
- Change in NWC = Ending NWC − Beginning NWC
  = $206 − $96
  = $110.

Step-by-step calculation (method 2: use changes in components):
- Change in Current Assets = $463 − $313 = $150.
- Change in Current Liabilities = $257 − $217 = $40.
- Change in NWC = Change in CA − Change in CL = $150 − $40 = $110.

Why the correct answer is correct:
Both methods give an increase in net working capital of $110. This reflects that current assets grew by $150 while current liabilities grew by only $40, so the firm’s short-term liquidity improved by $110.

Why other options are incorrect (briefly):
- −$110: wrong sign; NWC increased, not decreased.
- $190: does not match the arithmetic (perhaps confusion between sums), incorrect.
- $150: this is the increase in current assets alone, not the net change after liabilities.
- $0: implies no change, which is false because assets and liabilities both changed.

Conclusion: The change in net working capital is $110, matching the provided correct answer.

At the beginning of the year, a firm has current assets of $313 and current liabilities of $217. At the end of the year, the current assets are $463 and the current liabilities are $257. What is the change in net working capital?Single choice

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