What financial concept refers to the excess of current assets over current liabilities?

The concept that refers to the excess of current assets over current liabilities is known as working capital. Working capital is an essential measure for assessing a company's short-term financial health and operational efficiency. It gives insight into a company's ability to meet its short-term obligations and manage its day-to-day operations.

When current assets exceed current liabilities, it indicates that the business has sufficient resources to cover its immediate debts, which is crucial for maintaining daily operations and avoiding liquidity issues. Working capital is calculated using the formula:

Working Capital = Current Assets - Current Liabilities.

A sufficient amount of working capital can help a company take advantage of new opportunities, manage unexpected expenses, and invest in its growth. In contrast, a negative working capital suggests potential financial trouble, as it may indicate that the company cannot cover its short-term liabilities with its short-term assets.

In contrast, capital budgeting focuses on long-term investment decisions, net worth relates to the total assets minus total liabilities, and liquidity ratio measures a company's ability to cover its short-term obligations, but does not directly measure the excess of current assets over current liabilities like working capital does. Thus, working capital is the most appropriate term to define the excess of current assets over current liabilities.