What does "working capital" indicate?

"Working capital" refers specifically to the difference between a company's current assets and its current liabilities. This measurement serves as a crucial indicator of a company's short-term financial health and its efficiency in managing its operational liquidity. A positive working capital figure suggests that a company has more current assets than current liabilities, allowing it to cover its short-term obligations and invest in its operations. Conversely, negative working capital could indicate potential liquidity issues, signaling that a company may struggle to meet its short-term liabilities effectively.

The concept of working capital is essential for analyzing how well a company can maintain its day-to-day operations. It enables stakeholders, including management, investors, and creditors, to assess whether the company is utilizing its assets efficiently and whether it can sustain its short-term financial responsibilities.

In contrast, the other options focus on different financial metrics. Total cash on hand refers only to the liquid assets available to the company at a specific moment, which does not encompass the broader picture of working capital. Overall profitability looks at the company's performance across an extended period, which is unrelated to the immediate financial health that working capital measures. Lastly, the amount of equity in assets addresses the ownership stake related to the company's assets, rather than its liquidity and operational efficiency.