What does excess of current assets over current liabilities indicate?

What does excess of current assets over current liabilities indicate?

• A. Net working capital
• B. Total equity
• C. Gross profit
• D. Long-term assets

Answer: (A)

Excess of current assets over current liabilities indicates net working capital. Net working capital is a key financial metric that provides insight into a company's short-term financial health. It represents the difference between current assets, such as cash, accounts receivable, and inventories, and current liabilities, like accounts payable and short-term debt. A positive net working capital indicates that a company has sufficient assets to cover its short-term obligations, which is essential for liquidity and operational efficiency. This can help ensure that the business can meet its ongoing expenses and invest in growth opportunities. In contrast, options referring to total equity, gross profit, or long-term assets do not directly measure a company's immediate financial flexibility or its ability to meet short-term liabilities, thus making them less relevant in this context.

Excess of current assets over current liabilities indicates net working capital. Net working capital is a key financial metric that provides insight into a company's short-term financial health. It represents the difference between current assets, such as cash, accounts receivable, and inventories, and current liabilities, like accounts payable and short-term debt.

A positive net working capital indicates that a company has sufficient assets to cover its short-term obligations, which is essential for liquidity and operational efficiency. This can help ensure that the business can meet its ongoing expenses and invest in growth opportunities. In contrast, options referring to total equity, gross profit, or long-term assets do not directly measure a company's immediate financial flexibility or its ability to meet short-term liabilities, thus making them less relevant in this context.