What does working capital consist of and what is it needed for?

What does working capital consist of and what is it needed for?

• A. The money and stock needed to run the business day-to-day, pay expenses, and pay for materials
• B. Long-term investments and fixed assets
• C. Loans repayable in more than one year
• D. Profit retentions for dividends

Answer: (A)

Working capital is the funds available to run the business day to day. It covers the cash and near-cash resources plus stock (inventory) and other short‑term assets that can be turned into cash quickly, and it is used to meet current expenses and to buy materials needed for operations. In practical terms, it’s the amount available to cover daily bills and keep production moving while awaiting payment from customers. This is captured by current assets minus current liabilities, showing how much liquidity the company has to sustain operations in the short term. Long-term investments and fixed assets sit outside this measure, as do long-term loans and profits kept for dividends.

Working capital is the funds available to run the business day to day. It covers the cash and near-cash resources plus stock (inventory) and other short‑term assets that can be turned into cash quickly, and it is used to meet current expenses and to buy materials needed for operations. In practical terms, it’s the amount available to cover daily bills and keep production moving while awaiting payment from customers. This is captured by current assets minus current liabilities, showing how much liquidity the company has to sustain operations in the short term. Long-term investments and fixed assets sit outside this measure, as do long-term loans and profits kept for dividends.