The correct answer is: B. current assets minus current liabilities.
Net working capital is a measure of a company’s liquidity and efficiency. It is calculated by subtracting current liabilities from current assets. Current assets are assets that are expected to be converted into cash within one year, such as cash, accounts receivable, and inventory. Current liabilities are liabilities that are due within one year, such as accounts payable and short-term debt.
A positive net working capital indicates that a company has more current assets than current liabilities. This means that the company has enough cash and other liquid assets to pay off its short-term debts. A negative net working capital indicates that a company has more current liabilities than current assets. This means that the company may not be able to pay off its short-term debts.
Net working capital is an important measure of a company’s financial health. A positive net working capital indicates that a company is financially healthy and has enough liquidity to meet its short-term obligations. A negative net working capital indicates that a company may be in financial trouble and may not be able to pay its short-term debts.
Here is a brief explanation of each option:
- A. total assets minus fixed assets: This is not a measure of net working capital. Net working capital is a measure of a company’s liquidity and efficiency, and it is calculated by subtracting current liabilities from current assets.
- B. current assets minus current liabilities: This is the correct answer. Net working capital is a measure of a company’s liquidity and efficiency, and it is calculated by subtracting current liabilities from current assets.
- C. current assets minus inventories: This is not a measure of net working capital. Net working capital is a measure of a company’s liquidity and efficiency, and it is calculated by subtracting current liabilities from current assets. Inventories are not included in the calculation of net working capital.
- D. current assets: This is not a measure of net working capital. Net working capital is a measure of a company’s liquidity and efficiency, and it is calculated by subtracting current liabilities from current assets. Current assets are included in the calculation of net working capital, but they are not the only thing that is included.