What does working capital measure for a company?

Working capital is an important financial metric that assesses a company's liquidity, specifically its ability to meet short-term obligations with its current assets. It is calculated by subtracting current liabilities from current assets. Positive working capital indicates that a company has sufficient assets to cover its short-term liabilities, which is crucial for ensuring smooth operations and maintaining financial stability.

This measure reflects the efficiency of a company in managing its short-term financial health. If a company has ample working capital, it can easily handle unexpected expenses and continue day-to-day operations without financial strain. Conversely, negative working capital might indicate potential liquidity issues, which could lead to difficulties in paying off creditors and suppliers, ultimately affecting the company's operational effectiveness.

The other options either refer to different aspects or metrics unrelated to working capital. Total revenue relates to the overall income generated, total assets encompass everything owned by the company (both current and non-current), and profitability over time measures the overall success of the business in generating profit, rather than its short-term financial position. Therefore, option B correctly identifies the role of working capital in reflecting liquidity and the ability to manage short-term obligations.