Question

What is meant by working capital?

Hint:

Maintaining sufficient working capital is key to avoiding liquidity crises and supporting daily operations.

Answer 1

Step 1: Definition of Working Capital
Working capital is the capital available to a business for day-to-day operations. It is calculated as the difference between current assets and current liabilities.
Step 2: Formula for Working Capital
\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]
Step 3: Importance of Working Capital
- Liquidity Management: It helps ensure that the business can meet its short-term obligations. - Operational Efficiency: Adequate working capital allows smooth operations without interruptions. - Financial Flexibility: It enables the business to take advantage of opportunities and invest in growth.
Step 4: Conclusion
Working capital is essential for maintaining operational efficiency and ensuring financial stability.
Final Answer: \[ \boxed{\text{Working capital is the difference between current assets and current liabilities.}} \]