How is operating capital defined in financial terms?

How is operating capital defined in financial terms?

• A. Long-term assets minus long-term liabilities
• B. Total assets minus total liabilities
• C. Total current assets minus total current liabilities
• D. Net income minus taxes

Answer: (C)

Operating capital, often called working capital, is about the liquidity available to run daily operations. It compares what the business has in the short term (current assets such as cash, accounts receivable, and inventory) with what it owes in the short term (current liabilities such as accounts payable and short-term debt). The key idea is to show how much funds are available to cover everyday needs like payroll, supplier payments, and other operating costs. The most accurate way to express this is current assets minus current liabilities. A positive result means the business can fund its day-to-day activities from its short-term resources; a negative result signals a potential cash shortfall needing external financing. The other options point to long-term resources or overall profitability, which don’t capture the day-to-day liquidity used to operate.

Operating capital, often called working capital, is about the liquidity available to run daily operations. It compares what the business has in the short term (current assets such as cash, accounts receivable, and inventory) with what it owes in the short term (current liabilities such as accounts payable and short-term debt). The key idea is to show how much funds are available to cover everyday needs like payroll, supplier payments, and other operating costs. The most accurate way to express this is current assets minus current liabilities. A positive result means the business can fund its day-to-day activities from its short-term resources; a negative result signals a potential cash shortfall needing external financing. The other options point to long-term resources or overall profitability, which don’t capture the day-to-day liquidity used to operate.