What formula represents working capital?

Working capital is defined as the difference between a company's current assets and current liabilities. This metric is crucial because it measures a company's short-term financial health and its ability to cover its short-term obligations with its short-term assets.

Current assets include cash, inventory, and receivables that are expected to be converted into cash or consumed within a year. Current liabilities, on the other hand, are obligations that are due within the same timeframe. By subtracting current liabilities from current assets, working capital provides insight into a company's liquidity position; a positive working capital indicates that the company can comfortably meet its short-term liabilities, whereas negative working capital might suggest financial difficulties.

The other options provided do not pertain to working capital as they represent different concepts in financial analysis. For instance, net income divided by total revenue is a measure of profitability known as the profit margin. Total assets minus total liabilities calculates the shareholders' equity, reflecting the net worth of a company. Current liabilities divided by current assets indicates the company's liquidity ratio but does not measure working capital itself. Thus, the first option accurately represents the working capital formula.