Which action would improve working capital?

Which action would improve working capital?

• A. Collecting cash from customers
• B. Issuing new debt
• C. Paying off long-term loan
• D. Purchasing equipment on credit

Answer: (A)

Working capital is about short‑term liquidity, calculated as current assets minus current liabilities. Collecting cash from customers directly increases the cash available to meet near-term obligations, while reducing accounts receivable. This boosts the pool of liquid assets and strengthens the ability to cover current liabilities, so it improves working capital. Getting funds by issuing new debt is a financing move and doesn’t automatically increase liquid current assets for operations. Paying off a long-term loan lowers long-term liabilities without increasing current assets. Purchasing equipment on credit raises both a noncash asset and a current liability, which doesn’t improve liquidity in the immediate sense.

Working capital is about short‑term liquidity, calculated as current assets minus current liabilities. Collecting cash from customers directly increases the cash available to meet near-term obligations, while reducing accounts receivable. This boosts the pool of liquid assets and strengthens the ability to cover current liabilities, so it improves working capital.

Getting funds by issuing new debt is a financing move and doesn’t automatically increase liquid current assets for operations. Paying off a long-term loan lowers long-term liabilities without increasing current assets. Purchasing equipment on credit raises both a noncash asset and a current liability, which doesn’t improve liquidity in the immediate sense.