What does “working capital” represent?

What does “working capital” represent?

• A. The total assets of a company
• B. The difference between a company's current assets and current liabilities
• C. The total liabilities of a company
• D. The sum of fixed and current assets

Answer: (B)

Working capital is a financial metric that represents the difference between a company's current assets and current liabilities. This measure provides insight into the liquidity of a company and its operational efficiency. It indicates how much available capital a company has to cover its short-term obligations. When current assets exceed current liabilities, it signifies that the company can easily meet its short-term financial commitments, which is vital for maintaining smooth operations and solvency. Therefore, the correct definition of working capital highlights its importance in assessing a company's financial health and operational efficiency.

Working capital is a financial metric that represents the difference between a company's current assets and current liabilities. This measure provides insight into the liquidity of a company and its operational efficiency. It indicates how much available capital a company has to cover its short-term obligations. When current assets exceed current liabilities, it signifies that the company can easily meet its short-term financial commitments, which is vital for maintaining smooth operations and solvency. Therefore, the correct definition of working capital highlights its importance in assessing a company's financial health and operational efficiency.