Which statement correctly defines working capital?

• A. Current assets minus current liabilities equals profitability.
• B. Net income plus depreciation.
• C. Total assets minus total liabilities.
• D. Current assets minus current liabilities; it ensures liquidity for day-to-day operations.

Answer: (D)

Working capital is about short-term liquidity—the ability to cover immediate, day-to-day obligations using the most liquid assets. It is calculated by subtracting current liabilities from current assets. Current assets are things that can be turned into cash within a year (like cash, accounts receivable, and inventory), while current liabilities are obligations due within a year (such as accounts payable and short-term debt). The resulting difference shows the cushion available to fund daily operations, pay suppliers, and meet payroll.

This statement is the best fit because it directly defines working capital and links it to liquidity for ongoing operations. The other ideas mix in profitability or broader balance-sheet concepts. Profitability is about earnings, not the short-term cash cushion; equity is assets minus liabilities and reflects ownership value, not liquidity.