Which of the following represents investment in current assets required for day-to-day operations of the business?

Working Capital

The correct answer is option 3- Working Capital.

Working Capital represents investment in current assets required for day-to-day operations of the business.

Short-term investment decisions (also called working capital decisions) are concerned with the decisions about the levels of cash, inventory and receivables. These decisions affect the day-to-day working of a business. These affect the liquidity as well as profitability of a business. Efficient cash management, inventory management and receivables management are essential ingredients of sound working capital management.

Every business organisation needs to invest in current assets apart from the fixed asset. This investment facilitates smooth day-to day operations of the business. Current assets are usually more liquid but contribute less to the profits than fixed assets. For e.g. Cash in hand/Cash at Bank, Marketable securities, Bills receivable etc. Current liabilities are those payment obligations which are due for payment within one year; such as bills payable, creditors, outstanding expenses and advances received from customers, etc. 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 = Current Assets - Current Liabilities. Thus, net working capital may be defined as the excess of current assets over current liabilities.