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.

Mandalika

Published on 25-Sep-2020 14:01:17

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