What does positive Working Capital indicate about a company?

What does positive Working Capital indicate about a company?

• A. The company is unable to pay its debts
• B. The company has a surplus of cash on hand
• C. The company can pay off short-term debts
• D. The company is at risk of bankruptcy

Answer: (C)

Positive working capital indicates that a company has more current assets than current liabilities, which suggests that the company is in a good position to cover its short-term obligations. This means that there are sufficient resources available to meet debts as they come due, thus demonstrating financial stability and liquidity. In essence, when a company has positive working capital, it is able to use its assets, such as cash, inventory, and receivables, to pay off its short-term debts. This ability is crucial for maintaining daily operations and ensuring that the company can respond to unexpected expenses or downturns in sales. Therefore, having positive working capital is a signal of financial health and operational efficiency.

Positive working capital indicates that a company has more current assets than current liabilities, which suggests that the company is in a good position to cover its short-term obligations. This means that there are sufficient resources available to meet debts as they come due, thus demonstrating financial stability and liquidity.

In essence, when a company has positive working capital, it is able to use its assets, such as cash, inventory, and receivables, to pay off its short-term debts. This ability is crucial for maintaining daily operations and ensuring that the company can respond to unexpected expenses or downturns in sales. Therefore, having positive working capital is a signal of financial health and operational efficiency.