Which term is used as a liquidity measure and equals current assets minus current liabilities?

Which term is used as a liquidity measure and equals current assets minus current liabilities?

• A. Capital
• B. Net Assets
• C. Current Assets
• D. Net Current Assets/Working Capital

Answer: (D)

Liquidity is about how easily a business can cover its short-term debts. The figure that does this is net current assets, also known as working capital. It’s found by subtracting current liabilities from current assets. A positive result shows there’s enough short-term resources to meet obligations, while a negative result signals potential cash-flow problems. For example, current assets of 120,000 and current liabilities of 90,000 give net current assets of 30,000. This differs from capital or net assets, which relate to longer-term funding and overall financial position, and from current assets alone, which doesn’t show how much is available after liabilities are considered.

Liquidity is about how easily a business can cover its short-term debts. The figure that does this is net current assets, also known as working capital. It’s found by subtracting current liabilities from current assets. A positive result shows there’s enough short-term resources to meet obligations, while a negative result signals potential cash-flow problems. For example, current assets of 120,000 and current liabilities of 90,000 give net current assets of 30,000. This differs from capital or net assets, which relate to longer-term funding and overall financial position, and from current assets alone, which doesn’t show how much is available after liabilities are considered.