Future Business Leaders of America (FBLA) Agribusiness Practice Test

Disable ads (and more) with a membership for a one time $4.99 payment

Enhance your FBLA Agribusiness knowledge with our comprehensive test. Dive into flashcards and multiple-choice questions, complete with hints and explanations, to ensure exam success. Prepare confidently for a bright future!

Practice this question and more.

In the context of financial management, what is the implication of negative working capital?

It indicates strong liquidity in the business
It means current liabilities exceed current assets
It signifies profitable operations
It suggests effective cost management

The correct answer is: It means current liabilities exceed current assets

Negative working capital occurs when a company's current liabilities surpass its current assets, leading to a situation where short-term obligations cannot be met with short-term resources. In financial management, working capital is a crucial measure of a company’s operational efficiency and short-term financial health. This condition indicates that the business may struggle to cover its immediate liabilities with its available assets, putting it at risk of cash flow problems and potentially threatening its solvency. While some businesses may operate effectively with negative working capital, particularly in industries like retail where inventory turnover is rapid, it generally signifies financial stress. Understanding this concept is critical for financial assessments, as it helps identify potential liquidity issues that need to be addressed to ensure the company's stability and longevity.