Gross working capital

Definition

Gross working capital is the total value of a company's current assets, which are assets that are expected to be converted into cash within one year. It includes cash, accounts receivable, inventory, and other short-term assets.

5 Must Know Facts For Your Next Test

1. Gross working capital focuses solely on the total value of current assets without considering liabilities.
2. It is a key indicator of a company's operational efficiency and short-term financial health.
3. Effective management of gross working capital ensures that a company can meet its short-term obligations and continue operations smoothly.
4. An increase in gross working capital might indicate growing sales or improved liquidity, but it could also point to inefficient use of resources if not managed properly.
5. Gross working capital differs from net working capital, which subtracts current liabilities from current assets.

Review Questions

• What constitutes gross working capital?
• Why is managing gross working capital important for a business?
• What could an increase in gross working capital signify about a company's financial status?

Related terms

Net Working Capital:

The difference between current assets and current liabilities; it measures liquidity and operational efficiency.

Current Assets:

Assets expected to be converted into cash or used up within one year, such as cash, accounts receivable, and inventory.

Liquidity:

The ability of a company to meet its short-term obligations using its most liquid assets.