What is working capital?

Working capital refers to the difference between a company's current assets and current liabilities. This financial metric is essential for assessing a company's short-term liquidity and operational efficiency. Current assets include items such as cash, inventory, and accounts receivable that are expected to be converted to cash or used up within a year. Current liabilities are obligations that the company must settle within the same period, such as accounts payable, short-term loans, and other overdue debts.

By evaluating working capital, stakeholders can determine whether a company has enough short-term assets to cover its short-term financial obligations. Positive working capital indicates that a company can easily meet its short-term debts, while negative working capital signifies potential liquidity issues, which can affect the company's operations and financial health.

In contrast, the other options do not accurately capture the definition of working capital. Fixed assets focus on long-term properties and equipment rather than the short-term nature of working capital. The difference between total revenues and expenses relates to overall profitability but does not provide insight into liquidity. Finally, the total amount of cash available for investments emphasizes cash resources but does not encompass the broader working capital concept involving all current assets and liabilities.