Correction
Positive working capital can be relevant evidence, but it does not complete the going-concern evaluation. Management must consider conditions and events in the aggregate and assess the entity's ability to meet obligations when they become due during the required period.
A company can report more current assets than current liabilities while major receivables are collected after debt payments fall due. Restricted cash, customer losses, covenant violations, and unavailable financing can also change the conclusion. A profitable year does not settle these timing and access questions.
Management plans matter only when the applicable criteria support their likely implementation and effect. A proposed loan is not the same as committed financing.
Check your answer
Build a dated cash and obligation view, identify adverse conditions, test the evidence for management's plans, and apply the disclosure requirements. State what one ratio contributes and what it cannot prove.
When this mistake may appear
- Current assets exceed current liabilities.
- The company reported a profit for the year.
Your work may contain this mistake if:
- Declares survival certain from one ratio.
- Ignores collection and payment dates.
- Treats an unsupported financing plan as completed mitigation.