Question

What is the correct method for calculating working capital?

a. Current Assets minus Current Liabilities
b. Total Assets minus Total Liabilities
c. Current Assets minus Total Liabilities
d. Current Assets plus Current Liabilities

Answer 1

The correct method for calculating working capital is Current Assets minus Current Liabilities.

Step-by-step explanation:

The correct method for calculating working capital is option a: Current Assets minus Current Liabilities.

Working capital is a measure of a company's short-term financial health and its ability to cover its current obligations. It represents the amount of liquid assets available to a company after subtracting its current liabilities.

For example, if a company has $100,000 in current assets (such as cash, accounts receivable, and inventory) and $50,000 in current liabilities (such as accounts payable and short-term debt), the working capital would be $100,000 - $50,000 = $50,000.