Answer :
The concept of working capital is essential in business finance as it measures a company's short-term financial health and its ability to cover its short-term liabilities with its short-term assets.
Working capital is calculated using the formula:
[tex]\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}[/tex]
Current Assets: These are the assets that a company expects to convert to cash or use up within one year, such as cash, inventory, and receivables.
Current Liabilities: These are the obligations that a company needs to pay off within one year, such as accounts payable and short-term debt.
The correct answer to the given question is option 3: 'Current assets minus current liabilities.' This definition highlights the net amount of a company's resources available for daily operations and is a critical measure of a company's ability to pay its bills as they come due.
Understanding working capital helps businesses manage their operations efficiently, ensuring they have enough resources to not only meet their liabilities but also invest in growth opportunities.
