Which statement is true?

Which statement is true?

• A. Working capital is defined as current assets minus current liabilities.
• B. Comparative analysis is comparing ratios over time for the same farm business.
• C. Short term goals may require more than one year to achieve.
• D. Debt structure is defined as current liabilities divided by total equity.

Answer: (A)

Working capital measures the farm’s ability to cover near-term obligations. It is calculated as current assets minus current liabilities, so that statement is true. Positive working capital means there are more short-term resources than obligations due in the near term. Current assets include items like cash, accounts receivable, and inventory, while current liabilities include payables and other obligations due within a year. The other statements are less accurate because comparative analysis can involve both internal trends over time and external benchmarks, so defining it only as time-based comparison for one farm is too narrow; short‑term goals are typically set within a year, not longer; and debt structure usually refers to debt relative to equity (often long-term debt to equity), not current liabilities divided by total equity.

Working capital measures the farm’s ability to cover near-term obligations. It is calculated as current assets minus current liabilities, so that statement is true. Positive working capital means there are more short-term resources than obligations due in the near term. Current assets include items like cash, accounts receivable, and inventory, while current liabilities include payables and other obligations due within a year. The other statements are less accurate because comparative analysis can involve both internal trends over time and external benchmarks, so defining it only as time-based comparison for one farm is too narrow; short‑term goals are typically set within a year, not longer; and debt structure usually refers to debt relative to equity (often long-term debt to equity), not current liabilities divided by total equity.