Pennsylvania Esthetician State Board Practice Exam

Which term describes the capital required to operate a business?

1. Operating Capital

2. Fixed Assets

3. Working Capital

4. Investment Capital

The correct answer is: Operating Capital

The term that describes the capital required to operate a business is known as working capital. Working capital refers specifically to the funds that are necessary for the day-to-day operations of a business. This includes the money needed for inventory, payroll, accounts payable, and other short-term expenses that enable a company to maintain its operational efficiency. Operating capital, though similar, is often used interchangeably with working capital but can imply a more general range of funds necessary for overall operations rather than the specific short-term financial resources involved. Fixed assets refer to long-term tangible pieces of property owned by a company (like buildings or equipment) that are not easily converted into cash, while investment capital generally refers to funds that investors put into a business for long-term growth or income generation. These terms address different aspects of finance and business operations but do not capture the immediate capital necessary for the ongoing daily activities of a business as precisely as working capital does.