Question

Distinguish between gross working capital and net working capital.

Answer 1

Basis	Gross Working Capital	Net Working Capital
Meaning	Total investment in current assets.	Difference between current assets and current liabilities.
Formula	Gross Working Capital = Current Assets	Net Working Capital = Current Assets – Current Liabilities
Focus	Focuses on the overall value of current assets.	Focuses on the liquidity position (excess of current assets over current liabilities).
Objective	To know the total funds invested in current assets.	To measure the short-term financial strength of a business.
Indicates	The size of investment in current assets.	The surplus current assets available after paying current liabilities.
Example	Total of cash, debtors, stock, etc.	Current assets minus short-term loans, creditors, etc.