The correct answer is: D. Short-term funds have been used for current assets.
Net working capital is a measure of a company’s liquidity. It is calculated by subtracting current liabilities from current assets. A positive net working capital indicates that a company has more current assets than current liabilities, which is a good sign. A negative net working capital indicates that a company has more current liabilities than current assets, which is a bad sign.
There are a few reasons why a company might have a negative net working capital. One reason is that the company has used short-term funds to finance current assets. This can be a problem because short-term funds are usually more expensive than long-term funds. If a company has a lot of short-term debt, it may have difficulty repaying that debt if its business slows down.
Another reason why a company might have a negative net working capital is that it is not managing its inventory effectively. If a company has too much inventory, it will have to tie up a lot of cash in that inventory. This can make it difficult for the company to pay its bills on time.
Finally, a company might have a negative net working capital if it is not collecting its receivables quickly enough. If a company has a lot of accounts receivable that are past due, it will have to wait longer to receive the cash that it is owed. This can make it difficult for the company to pay its bills on time.
If a company has a negative net working capital, it is important to take steps to improve it. One way to do this is to reduce the amount of short-term debt that the company has. Another way is to manage inventory more effectively. Finally, the company can try to collect its receivables more quickly.
Improving a company’s net working capital can help to improve its liquidity and reduce its risk of financial distress.