Working Capital Is

question 16

Multiple Choice

Working capital is

• A)calculated by dividing current assets by current liabilities.
• B)used to evaluate a company's liquidity and short-term debt-paying ability.
• C)used to evaluate a company's solvency and long-term debt-paying ability.
• D)calculated by subtracting current liabilities from total assets.

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Definitions:

EBIT

EBIT stands for Earnings Before Interest and Taxes, a measure of a firm’s profitability that excludes interest and income tax expenses.

EPS

Earnings Per Share, a company's profit divided by the number of its common shares outstanding, indicating the company's profitability.

EBIT-EPS Line

A graphical representation showing the impact of financial leverage on a company's earnings per share at various levels of earnings before interest and taxes.

Financial Leverage

The use of borrowed funds to increase the potential return on investment, often measured by the ratio of a company's debt to its equity.