Question

Net working capital is the difference between:

1) current assets and current liabilities
2) shareholders' equity and long-term debt
3) total assets and total liabilities
4) total assets and current assets

Answer 1

Net working capital is the difference between current assets and current liabilities, disclosing a company's ability to pay short-term debts with its short-term assets. Comparably, bank capital regards a bank's net worth, needed for ensuring solvency and satisfying regulatory requirements.

Step-by-step explanation:

The correct answer to the student's question is that net working capital is the difference between current assets and current liabilities. This measurement is vital for understanding a company's short-term financial health and liquidity. Current assets include items such as cash, accounts receivable, and inventory, while current liabilities encompass debts or obligations due within one year, like accounts payable or short-term loans.

To put it simply, net working capital helps assess whether a firm has enough short-term assets to cover its short-term debts. Link it up with the concept of bank capital, which represents a bank's net worth, derived from the difference between a bank's assets and its liabilities. This is crucial because a positive net worth indicates solvency, while negative net worth may point to insolvency or bankruptcy. Regulation mandates that banks maintain a minimum net worth to protect depositors and creditors.

Answer 2

1) current assets and current liabilities because Net working capital is the difference between current assets and current liabilities, disclosing a company's ability to pay short-term debts with its short-term assets. Comparably, bank capital regards a bank's net worth, needed for ensuring solvency and satisfying regulatory requirements.

Step-by-step explanation:

The correct answer to the student's question is that net working capital is the difference between current assets and current liabilities. This measurement is vital for understanding a company's short-term financial health and liquidity.

Current assets include items such as cash, accounts receivable, and inventory, while current liabilities encompass debts or obligations due within one year, like accounts payable or short-term loans.

To put it simply, net working capital helps assess whether a firm has enough short-term assets to cover its short-term debts.

Link it up with the concept of bank capital, which represents a bank's net worth, derived from the difference between a bank's assets and its liabilities. This is crucial because a positive net worth indicates solvency, while negative net worth may point to insolvency or bankruptcy.

Regulation mandates that banks maintain a minimum net worth to protect depositors and creditors.

Correct option is 1) current assets and current liabilities.