Differentiate between Net working capital and Gross working capital.

The major differences between net working capital and gross working capital are as follows −

Net working capital

  • Qualitative in nature.
  • Tells about whether company can meet its operating expenses and its current liability.
  • Net working capital is result of difference between current and current liability.
  • Concept used in accounting system.
  • Suitable for partnership firms and sole traders.
  • Reveals company’s financial position.
  • Companies net working capital increases when, there is increase in retained profits and sale of assets.

Gross working capital

  • Quantitative in nature.
  • Tells about overall amount at hand for financing current assets.
  • Gross working capital is the result of sum of all current assets.
  • Concept used in financial management.
  • Suitable for companies.
  • Financial position of a company is not revealed.
  • Gross working capital will increase when company’s borrowing increases.

Updated on: 25-Sep-2020

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