Utah Contractor Practice Exam

What kind of information tells you if you are able to pay off your bills?

1. Net working capital

2. Net current assets

3. Current liability

4. Income statement

The correct answer is: Net working capital

Net working capital is a crucial measure that indicates a company's short-term financial health and its ability to meet its short-term liabilities with its short-term assets. It is calculated as current assets minus current liabilities. When you have positive net working capital, it suggests that you have sufficient assets to cover your debts, which reflects your capacity to pay off bills. This measure is particularly important for contractors because it provides insight into day-to-day operational liquidity. By assessing net working capital, a contractor can determine if they have enough cash flow to take on new projects, pay suppliers, and handle worker wages, which are all essential for maintaining operations without financial strain. Analyzing net working capital helps in planning and ensuring that the business can sustain its operations while comfortably fulfilling its financial obligations.