Question

Net working capital may be defined as the:

Options

• Excess of current assets over current liabilities

• Excess of current liabilities over current assets

• Both (1) and (2) .

• None of the above

Answer 1

Excess of current assets over current liabilities

Explanation - 

Some part of current assets is usually financed through short-term sources, i.e., current liabilities. The rest is financed through long-term sources and is called net working capital. Thus, NWC = CA - CL (i.e. Current Assets - Current Liabilities.)