What is defined as current assets minus current liabilities?

• A. Current Ratio
• B. Net Profit on Sales Ratio
• C. Working Capital
• D. Debt Ratio

Answer: (C)

Working capital is the measure of a company’s short‑term liquidity, defined as current assets minus current liabilities. It shows how much short‑term resources are available to cover day‑to‑day obligations. Current assets include items like cash, accounts receivable, and inventory that are expected to be converted into cash within a year. Current liabilities are obligations due within a year, such as accounts payable, short‑term debt, and accrued expenses. If working capital is positive, the business has more short‑term assets than obligations and can fund operations; if it’s negative, there may be liquidity issues. This concept is different from the current ratio, which is current assets divided by current liabilities, and from profitability measures like net profit margin or leverage measures like the debt ratio. For example, if current assets total 500 and current liabilities total 350, working capital is 150.