Financial ratios and working capital – Identify the wrong statement: Which of the following statements is incorrect for standard chemical engineering economics terminology?

Introduction / Context:Accurate use of financial terms is essential for cash planning, credit analysis, and project evaluation in the process industries. Misstating definitions can distort liquidity and profitability assessments.

Given Data / Assumptions:

• Standard definitions: net working capital = current assets − current liabilities.
• ROI in many texts uses profit before interest and tax (PBIT) over capital employed.
• Turnover (for goods) = opening stock + production − closing stock (before adjustments for WIP or scrap).

Concept / Approach:Working capital measures short-term liquidity available to run operations. Adding current liabilities to current assets (as the statement suggests) inflates the figure incorrectly; the correct relationship is subtraction.

Step-by-Step Solution:Recall: Working capital = Current assets − Current liabilities.Check each option: (a) and (b) align with conventional use; (d) is the standard stock reconciliation for turnover.Therefore, (c) is the incorrect statement.

Verification / Alternative check:Cross-check any finance textbook or corporate finance primer: net working capital uses subtraction, not addition.

Why Other Options Are Not Wrong:

• (a) Debt–equity ratio definition is widely used in project finance.
• (b) ROI formula is standard in plant economics.
• (d) The turnover expression is the classical identity before sales adjustments.

Common Pitfalls:Confusing gross working capital (current assets) with net working capital (current assets − current liabilities).

Final Answer:Working capital equals current assets plus current liabilities.