The correct answer is A. Current asset plus current liability.
Working capital is a measure of a company’s liquidity and efficiency. It is calculated by taking the current assets of a company and subtracting its current liabilities. 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 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 cover its short-term debts. A negative working capital indicates that a company has more current liabilities than current assets. This means that the company may have difficulty meeting its short-term obligations.
There are a number of things that companies can do to improve their working capital. One way is to increase their current assets. This can be done by increasing sales, collecting receivables more quickly, or reducing inventory levels. Another way to improve working capital is to decrease current liabilities. This can be done by negotiating longer payment terms with suppliers, delaying payments to employees, or issuing long-term debt.
Working capital is an important measure of a company’s financial health. A positive working capital indicates that a company is in good financial condition and is able to meet its short-term obligations. A negative working capital, on the other hand, indicates that a company may have difficulty meeting its short-term obligations and may be in financial trouble.
Here is a brief explanation of each option:
- Option A: Current asset plus current liability. This is the correct answer. Working capital is calculated by taking the current assets of a company and subtracting its current liabilities.
- Option B: Current asset minus current liability. This is not the correct answer. Working capital is calculated by taking the current assets of a company and adding its current liabilities.
- Option C: Fixed asset plus current asset. This is not the correct answer. Fixed assets are assets that are not expected to be converted into cash within one year. Current assets are assets that are expected to be converted into cash within one year.
- Option D: Fixed asset minus current asset. This is not the correct answer. Fixed assets are assets that are not expected to be converted into cash within one year. Current assets are assets that are expected to be converted into cash within one year.