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.
Published on 25-Sep-2020 17:31:17