What is the Difference Between Gross Working Capital and Net working Capital?
🆚 Go to Comparative Table 🆚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:
Gross Working Capital | Net Working Capital |
---|---|
Sum of all current assets (cash, accounts receivable, inventory, marketable securities) | Difference between current assets and current liabilities (current assets - current liabilities) |
Represents the total value of assets that can be used to fund daily business activities | Represents the difference between assets and liabilities, providing a more accurate picture of a company's short-term financial health |
Formula: Gross Working Capital = Receivables + Cash and Marketable Securities + Inventory + Short-term Investments + Other Current Assets | Formula: Net Working Capital = Current Assets - Current Liabilities |
Useful for tracking and comparing against competing companies, but has limitations as it does not consider liabilities | More useful measure for financial analysis, as it accounts for both assets and liabilities |
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.
- Fixed Capital vs Working Capital
- Net Profit vs Gross Profit
- Gross vs Net Income
- Cash Flow vs Net Income
- Net vs Gross
- Gross Profit vs Operating Profit
- Operating Income vs Net Income
- Term Loan vs Working Capital Loan
- Gross Profit vs Gross Margin
- Operating Profit vs Net Profit
- Net Income vs Net Profit
- Gross Salary vs Net Salary
- Gross Primary Productivity vs Net Primary Productivity
- Contribution Margin vs Gross Margin
- Gross Margin vs EBITDA
- Gross Weight vs Net Weight
- Present Value vs Net Present Value
- Fund Flow vs Cash Flow
- Cost of Capital vs WACC