What is working capital?

What is working capital?

• A. The net value of all assets minus liabilities
• B. The long-term capital invested in the business
• C. The excess of current assets over current liabilities
• D. The total revenue generated in a period

Answer: (C)

Working capital is a measure of a company's ability to meet its short-term obligations using its liquid assets. It is the excess of current assets over current liabilities, so a positive amount indicates there is money available to fund day-to-day operations, while a negative amount signals potential liquidity problems. For example, if current assets total 200,000 and current liabilities total 150,000, working capital is 50,000, showing available liquidity. This concept focuses on short-term liquidity, not long-term financing or profitability; it differs from total assets minus liabilities (net assets) and from revenue, which relates to income rather than liquidity.

Working capital is a measure of a company's ability to meet its short-term obligations using its liquid assets. It is the excess of current assets over current liabilities, so a positive amount indicates there is money available to fund day-to-day operations, while a negative amount signals potential liquidity problems. For example, if current assets total 200,000 and current liabilities total 150,000, working capital is 50,000, showing available liquidity. This concept focuses on short-term liquidity, not long-term financing or profitability; it differs from total assets minus liabilities (net assets) and from revenue, which relates to income rather than liquidity.