Which statement describes non-cash working capital?

Which statement describes non-cash working capital?

• A. The difference between current assets excluding cash and current liabilities
• B. The sum of cash and short-term investments
• C. The difference between cash and current liabilities
• D. The total of cash, inventory, and PPE

Answer: (A)

Non-cash working capital measures the operating liquidity tied up in short-term assets and liabilities, excluding cash. It represents what’s needed to run day-to-day operations using non-cash current assets. The correct way to express it is by taking current assets excluding cash (which accounts for items like accounts receivable and inventory) and subtracting current liabilities. This shows the net investment in operating assets funded by near-term obligations. Why this fits: it isolates the working capital tied to operations, removing cash since cash is a financing resource, not an operating asset. The other statements mix in cash, include long-term assets like PPE, or combine cash with liabilities, which does not reflect the non-cash working capital used to run the business.

Non-cash working capital measures the operating liquidity tied up in short-term assets and liabilities, excluding cash. It represents what’s needed to run day-to-day operations using non-cash current assets. The correct way to express it is by taking current assets excluding cash (which accounts for items like accounts receivable and inventory) and subtracting current liabilities. This shows the net investment in operating assets funded by near-term obligations.

Why this fits: it isolates the working capital tied to operations, removing cash since cash is a financing resource, not an operating asset. The other statements mix in cash, include long-term assets like PPE, or combine cash with liabilities, which does not reflect the non-cash working capital used to run the business.