What is working capital, and which two actions illustrate its management in a hospital?

• A. Working capital = total assets.
• B. Working capital = current assets minus current liabilities; examples: managing AR days, purchasing inventory and supplies to maintain cash flow.
• C. Working capital = net income.
• D. Working capital = cash on hand only.

Answer: (B)

Working capital is the difference between current assets and current liabilities, a measure of a hospital’s ability to cover its short-term needs with near-term resources. It reflects liquidity to pay for daily operations like payroll, utilities, and supplier bills.

Two actions illustrate its management: speeding up cash inflows by reducing accounts receivable days—efficient billing and collections that convert patient and insurer services into cash faster; and carefully managing purchasing of inventory and supplies to maintain cash flow—keeping enough on hand to operate without tying up excess cash in stock. Together, these practices keep current assets in balance with current liabilities, supporting smooth day-to-day operations.

Other definitions like total assets, net income, or cash on hand alone don’t capture this short-term liquidity picture.