Net working capital equals current assets
Blank
______ current liabilities.

Question

Net working capital equals current assets 
Blank
______ current liabilities.

BlackTom AI · Accepted Answer

Net working capital equals current assets minus current liabilities.

1) Relevant knowledge points and concepts:
- Current assets: cash, accounts receivable, inventory and other assets expected to be converted to cash within a year.
- Current liabilities: short-term obligations due within a year, such as accounts payable and short-term debt.
- Net working capital (NWC): a liquidity metric that represents the excess of short-term resources over short-term obligations; it is defined as current assets minus current liabilities.

2) Step-by-step reasoning process:
- Start with the definition: NWC = Current Assets - Current Liabilities.
- This formula reflects how much of the firm's short-term resources remain after meeting short-term obligations.

3) Calculations with intermediate steps (example):
- Suppose Current Assets = $50,000 and Current Liabilities = $30,000.
- Compute NWC: NWC = $50,000 - $30,000.
- Intermediate subtraction step: 50,000 minus 30,000 = 20,000.
- Result: NWC = $20,000 (positive working capital indicates the firm can cover its short-term obligations).

You can also get a negative NWC if liabilities exceed assets. Example: CA = $25,000, CL = $40,000 → NWC = 25,000 - 40,000 = -15,000.

4) Why the correct answer is correct:
- The term “net” indicates one quantity is being offset by another; in accounting “net working capital” specifically subtracts current liabilities from current assets to show the net short-term financial position. Subtraction is the proper arithmetic operation to capture what remains after meeting liabilities.

5) Why the other options are incorrect:
- Times (multiplication): Multiplying current assets by current liabilities makes no conceptual sense for a liquidity measure and would produce a product, not a net balance.
- Divided by (division): Division would produce a ratio, not a dollar amount of remaining short-term resources; ratios like current ratio use division (Current Assets / Current Liabilities), but that is a different metric.
- Plus (addition): Adding assets and liabilities would give a misleading total of short-term items rather than the net available after obligations; it does not represent “net” working capital.

Conclusion: Net working capital equals current assets minus current liabilities; therefore the correct answer is "minus."

Net working capital equals current assets Blank ______ current liabilities.Single choice

Similar Questions

Which one of the following will decrease the value of a firm's net working capital?

The difference between a firm's current assets and its current liabilities is called:

Question at position 6 Net working capital equals:Total assets − total liabilitiesEquity − debtCash − debtCurrent assets − current liabilities

At the beginning of the year, a firm has current assets of $313 and current liabilities of $217. At the end of the year, the current assets are $463 and the current liabilities are $257. What is the change in net working capital?

A 62.9 kg lady is standing on a weighing scale in an elevator as shown in the diagram below. Assume gravitational acceleration = 15 ms-2 Given that the elevator is accelerating upwards at 3.7 ms-2 , determine the magnitude of the normal force on the lady.

An object is fired from ground level at an angle of 31.9 degrees to the horizontal. Taking acceleration due to gravity = 7.65 ms-2 If the initial speed is 5.6 ms-1, how far from the starting point will it hit the ground? Assume air resistance is negligible.

Which of the following equations of motion would be used to calculate the displacement given the initial and final velocities as well as the acceleration?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler