What is the formula for calculating Working Capital?

Working capital is a financial metric that measures a company's operational efficiency and short-term financial health. It is calculated by subtracting current liabilities from current assets. This formula reflects the amount of liquid assets available to the company to cover its short-term obligations.

The focus here is on current assets and current liabilities, as they are the components that represent the resources a business can quickly convert into cash and the obligations that need to be settled in the near term. Positive working capital indicates that a company can easily fund its day-to-day operations and invest in its growth, whereas negative working capital may signal liquidity issues.

In this context, the other choices provided do not accurately represent the calculation of working capital. For instance, total assets minus total liabilities captures the overall equity position of a company rather than its operational liquidity. Current assets plus current liabilities does not provide a meaningful measure of liquidity, as this form of summation does not indicate how well current assets can cover current liabilities. Lastly, equity minus liabilities is a formulation of net assets, which is not relevant to determining working capital specifically. These distinctions help clarify why the correct formula involves subtracting current liabilities from current assets.