Which term represents the measure of short-term financial health defined as current assets minus current liabilities?

Which term represents the measure of short-term financial health defined as current assets minus current liabilities?

• A. Bank Debt
• B. Working Capital
• C. Intangible Assets
• D. Accounts Payable

Answer: (B)

The measure being tested is liquidity, specifically how much cushion a company has to cover its short-term obligations. When you subtract current liabilities from current assets, you get working capital. This figure shows how much the business can rely on in the near term to pay bills, fund day-to-day operations, and handle unexpected expenses. Positive working capital means the company can comfortably meet short-term needs; negative working capital signals potential liquidity problems. The term that represents this difference is working capital. Bank debt is a debt obligation and not a measure of short-term health, intangible assets are long-term non-physical assets, and accounts payable is a current liability itself, not the net amount after subtracting liabilities from assets.

The measure being tested is liquidity, specifically how much cushion a company has to cover its short-term obligations. When you subtract current liabilities from current assets, you get working capital. This figure shows how much the business can rely on in the near term to pay bills, fund day-to-day operations, and handle unexpected expenses. Positive working capital means the company can comfortably meet short-term needs; negative working capital signals potential liquidity problems.

The term that represents this difference is working capital. Bank debt is a debt obligation and not a measure of short-term health, intangible assets are long-term non-physical assets, and accounts payable is a current liability itself, not the net amount after subtracting liabilities from assets.