Which statement about working capital is true?

Which statement about working capital is true?

• A. It is the money and stock needed to run the business day-to-day
• B. It is the total value of all fixed assets
• C. It is the net profit after tax
• D. It is the total equity of the business

Answer: (A)

Working capital shows how much liquid resource a business has to cover daily operations. It’s usually defined as current assets minus current liabilities, representing the funds available to meet short-term needs like inventory, cash, and accounts receivable that will be used up or converted within a year. The statement describes the money and stock needed to run the business day-to-day, which is exactly what working capital is about: ensuring there’s enough liquidity to operate and pay short-term obligations. Other concepts describe different things: fixed assets are long-term resources like buildings and equipment; net profit after tax is about profitability; total equity reflects the owners’ claim on the business.

Working capital shows how much liquid resource a business has to cover daily operations. It’s usually defined as current assets minus current liabilities, representing the funds available to meet short-term needs like inventory, cash, and accounts receivable that will be used up or converted within a year. The statement describes the money and stock needed to run the business day-to-day, which is exactly what working capital is about: ensuring there’s enough liquidity to operate and pay short-term obligations.

Other concepts describe different things: fixed assets are long-term resources like buildings and equipment; net profit after tax is about profitability; total equity reflects the owners’ claim on the business.