Question

when does a company know that it has sufficient working capital?
when it can meet all of its short-term expenses and debts with current assets
when its total assets are equal to its total liabilities
when its working capital is positive
when it has cash reserves

Explanation:

Working capital relates to a company's ability to cover short - term obligations. Sufficient working capital means current assets (like cash, inventory, accounts receivable) can cover short - term expenses and debts. Let's analyze each option:

• Option 1: "When it can meet all of its short - term expenses and debts with current assets" matches the definition of sufficient working capital. Working capital is calculated as current assets minus current liabilities. If current assets can cover short - term (current) obligations, working capital is sufficient.
• Option 2: "When its total assets are equal to its total liabilities" means equity is zero, which has nothing to do with working capital (working capital is about current assets and current liabilities, not total assets and total liabilities).
• Option 3: "When its working capital is positive" is a general statement, but a positive working capital doesn't always mean it can meet all short - term obligations (e.g., if current assets are mostly illiquid). The first option is more precise.
• Option 4: "When it has cash reserves" is too narrow. Working capital considers all current assets, not just cash, to cover short - term obligations.

Answer:

A. When it can meet all of its short - term expenses and debts with current assets