What is the Difference Between Gross Working Capital and Net working Capital?

The difference between gross working capital and net working capital lies in the consideration of current liabilities. Here are the key differences between the two:

• Gross Working Capital: It is the sum of a company's current assets, which are assets that can be converted to cash within a year or less. These assets include cash and cash equivalents, marketable securities, accounts receivable, inventory, and other short-term assets. The formula for calculating gross working capital is: Gross Working Capital = Total Current Assets.
• Net Working Capital: It is the difference between a company's current assets and its current liabilities. Current liabilities are short-term debts that the company owes. The formula for calculating net working capital is: Net Working Capital = Current Assets - Current Liabilities.

In essence, gross working capital only considers the assets of a company, while net working capital takes into account both assets and liabilities. Net working capital provides a more comprehensive picture of a company's operational efficiency and short-term financial health, as it accounts for the company's ability to cover its short-term debts. In contrast, gross working capital may misrepresent the short-term financial position of a company, as it does not consider the company's obligations.

Comparative Table: Gross Working Capital vs Net working Capital

Gross Working Capital and Net Working Capital are two financial metrics used to measure a company's liquidity and short-term financial health. Here is a table comparing the key differences between them:

In summary, Gross Working Capital represents the total value of a company's current assets, while Net Working Capital is the difference between current assets and current liabilities. Net Working Capital provides a more accurate picture of a company's short-term financial health, as it accounts for both assets and liabilities.