What is referred to as the funds available for a business's short-term financial commitments?

What is referred to as the funds available for a business's short-term financial commitments?

• A. Operating capital
• B. Investment capital
• C. Working capital
• D. Equity capital

Answer: (C)

The funds available for a business's short-term financial commitments are referred to as working capital. Working capital is calculated by taking the current assets of a business and subtracting its current liabilities. This metric reflects the liquidity of a business and its ability to cover short-term obligations that are essential for day-to-day operations, such as paying suppliers, managing inventory, and meeting any other current expenses. Understanding working capital is crucial for a business because it indicates financial health and operational efficiency. A positive working capital means that a business can easily meet its short-term liabilities, while a negative working capital can signal potential cash flow issues. The other options focus on different aspects of financing. Operating capital generally refers to funds necessary for the everyday functioning of a business but is a broader term. Investment capital typically refers to funds set aside for long-term investments, while equity capital is money raised through the sale of shares in a company. These options do not specifically address short-term financial commitments, which is why working capital is the most accurate choice.

The funds available for a business's short-term financial commitments are referred to as working capital. Working capital is calculated by taking the current assets of a business and subtracting its current liabilities. This metric reflects the liquidity of a business and its ability to cover short-term obligations that are essential for day-to-day operations, such as paying suppliers, managing inventory, and meeting any other current expenses.

Understanding working capital is crucial for a business because it indicates financial health and operational efficiency. A positive working capital means that a business can easily meet its short-term liabilities, while a negative working capital can signal potential cash flow issues.

The other options focus on different aspects of financing. Operating capital generally refers to funds necessary for the everyday functioning of a business but is a broader term. Investment capital typically refers to funds set aside for long-term investments, while equity capital is money raised through the sale of shares in a company. These options do not specifically address short-term financial commitments, which is why working capital is the most accurate choice.