What is the correct method for calculating working capital?
A)Total Assets - Total Liabilities
B)Current Assets - Total Liabilities
C)Current Assets - Current Liabilities
D)Current Assets + Current Liabilities

Question

Quizplus · Accepted Answer

Working capital is calculated by subtracting current liabilities from current assets. This formula gives a more accurate representation of a company's ability to meet its short-term financial obligations. Option A includes long-term assets and liabilities, which are not relevant to determining working capital, while option B only subtracts total liabilities, omitting non-current liabilities. Option D adds current assets and liabilities, providing a different financial metric, but not the calculation for working capital.

What Is the Correct Method for Calculating Working Capital