Which term is used for the difference between current assets and current liabilities?

The term that refers to the difference between current assets and current liabilities is working capital. Working capital is a crucial financial metric that indicates a company’s short-term financial health and operational efficiency. It reflects the liquidity available to a business for its day-to-day operations.

When calculating working capital, current assets include cash, accounts receivable, inventory, and other assets that are expected to be converted into cash within a year. Current liabilities, on the other hand, consist of obligations that the company needs to settle within a year, such as accounts payable and short-term debt.

This calculation is important because it helps assess whether the company has enough short-term assets to cover its short-term liabilities. A positive working capital indicates that a company is in a position to pay off its short-term liabilities with its short-term assets, suggesting good financial health.

In contrast, the current ratio measures the relationship between current assets and current liabilities, while net assets refer to the total assets minus total liabilities, and gross profit pertains to sales revenue minus the cost of goods sold. Each of those terms serves a different analytical purpose and cannot directly be used to represent the difference between current assets and current liabilities.