Working capital from the balance sheet Which quantity can be obtained directly from a company’s balance sheet as the difference between current assets and current liabilities?

Introduction / Context:
Liquidity and short-term financial health are crucial for sustaining operations, purchasing feedstocks, and absorbing start-up fluctuations. Several related metrics can be computed from the balance sheet, but only one is explicitly the difference between current assets and current liabilities.

Given Data / Assumptions:

• Standard accounting definitions apply.
• “Current” means convertible into cash or due within one year.

Concept / Approach:
Net working capital (NWC) is defined as current assets minus current liabilities. It estimates the cushion available to meet short-term obligations and carry inventories/receivables. Ratios such as the current ratio or cash ratio use quotients of these balances, not differences, and “liquid assets” is not a standard line equal to the difference.

Step-by-Step Solution:

Verification / Alternative check:
Finance texts define working capital and discuss its role in project cash-flow planning, particularly during ramp-up and seasonal swings.

Why Other Options Are Wrong:

• Cash ratio: Cash and equivalents divided by current liabilities.
• Current ratio: Current assets divided by current liabilities.
• Liquid assets: A category of assets, not the difference.

Common Pitfalls:
Confusing “working capital” with “cash on hand”; NWC includes receivables and inventories as well.

Final Answer:
Net working capital