Which of the following scenarios could negatively affect a company's working capital?

Rapidly increasing inventory levels can negatively affect a company's working capital because it ties up cash that could otherwise be used for other operational activities. When a company increases its inventory, it may indicate that products are being overstocked or not selling as quickly as anticipated. This situation can lead to higher holding costs, such as storage and insurance, and the risk of obsolescence if the inventory does not sell.

Having too much inventory can also restrict cash flow since money is allocated to purchasing stock rather than being available for critical business activities like paying suppliers or investing in new opportunities. This imbalance can create liquidity issues, making it difficult for a company to meet its short-term obligations. In contrast, increasing sales revenue, effective cost management, and improving cash flow are generally favorable for working capital, as they contribute to a stronger financial position and greater liquidity.