Question

Net working capital means

• A. Current Assets – Current Liabilities
• B. Current Assets + Current Liabilities
• C. Current Liabilities – Current Assets
• D. None of these

Hint:

NWC = Liquidity measure; positive NWC means financial health.

Answer 1

The Correct Option is A

Step 1: Understanding net working capital.
Net working capital (NWC) measures the liquidity position of a business.
It shows how much current assets are available after meeting current liabilities.
Step 2: Formula.
\[ \text{NWC} = \text{Current Assets} - \text{Current Liabilities} \]
Step 3: Interpretation.
- Positive NWC = company can easily pay short-term obligations.
- Negative NWC = liquidity crisis, cannot cover short-term liabilities.
Step 4: Option analysis.
- (A) Current Assets – Current Liabilities: Correct formula.
- (B) Current Assets + Current Liabilities: Wrong, meaningless sum.
- (C) Current Liabilities – Current Assets: Wrong, reverse calculation.
- (D) None of these: Wrong, since (A) is correct.
Step 5: Conclusion.
Net working capital is calculated as Current Assets – Current Liabilities.