What is meant by working capital?

Working capital refers to the difference between a company's current assets and its current liabilities. This financial metric is crucial for assessing a company's short-term financial health and operational efficiency. Current assets can include cash, accounts receivable, and inventory, while current liabilities include obligations such as accounts payable and short-term debts.

This difference provides insight into how well a company can cover its short-term liabilities with its short-term assets. A positive working capital indicates that the company can easily meet its short-term obligations, which is vital for maintaining liquidity and ensuring continued operations. Conversely, negative working capital may suggest financial difficulties, as it means the company may not have enough assets on hand to cover its immediate debts.

The other options represent different financial concepts but do not accurately define working capital. For instance, simply stating the total amount of cash a company has does not account for other vital elements, and the total value of assets owned by the company encompasses all asset categories, not just those relevant for assessing short-term financial management. Likewise, the budget allocated for daily operations pertains to planning and expenditures rather than the immediate liquidity position, which is central to the definition of working capital.