How is working capital defined?

Working capital is defined as the difference between current assets and current liabilities. This measure is crucial for assessing a company's short-term financial health and its ability to cover its short-term obligations with its short-term assets. Current assets typically include cash, accounts receivable, and inventory, while current liabilities encompass accounts payable, short-term debt, and other immediate financial obligations.

By calculating working capital, businesses can determine if they have sufficient liquidity to manage their operations and meet upcoming expenses. A positive working capital indicates that a company can comfortably pay off its current liabilities with its current assets, while a negative working capital would signal potential liquidity issues.

The other options, while related to financial management, address different aspects of a company's operations or finances. The total amount of cash available for daily operations refers specifically to cash flow management rather than the overall balance of current assets and liabilities. The value of inventory on hand only gives insights into a single component of current assets, failing to provide a complete picture of liquidity. Lastly, the total equity held by shareholders reflects the shareholders’ stake in the company and is not a measure of a company’s operational liquidity.