What is the formula for calculating working capital?

The formula for calculating working capital is based on the difference between current assets and current liabilities. This measure helps assess the short-term financial health of a company, indicating whether it has enough assets to cover its short-term obligations.

Current assets include cash, accounts receivable, inventory, and other assets that are expected to be converted to cash or used up within a year. On the other hand, current liabilities consist of obligations that the company needs to settle within the same timeframe, such as accounts payable and short-term debt.

By subtracting current liabilities from current assets, you can determine how much capital is available for day-to-day operations. A positive working capital indicates that the firm can efficiently meet its short-term liabilities, while a negative figure may raise concerns regarding liquidity and operational stability.

The other options do not reflect the standard computation for working capital and would provide misleading information if used.