Gross Working Capital Explanation
Gross working capital refers to a company's total current assets within a fiscal year. This includes cash, inventory, accounts receivable, and other short-term assets. It's a measure of a company's short-term financial health and operational efficiency.
The Gross Working Capital formula is simply:
Gross Working Capital = Current Assets
However, it's important to note that gross working capital doesn't account for current liabilities, and may not accurately reflect a company's financial status. Therefore, it's advised to also assess the firm's Net Working Capital.
Calculating Gross Working Capital
To calculate gross working capital, sum all current assets held within a 12-month period. This includes:
Gross working capital = current investments + cash + accounts receivable + short-term assets + inventory + commercial papers + other current assets
Also, consider the company's current liabilities for a more thorough financial analysis.
Gross Working Capital Example
Let's look at an example:
Cash = Rs. 55,000
Accounts receivable = Rs. 10,000
Current investments = Rs. 80,000
Commercial papers = Rs. 25,000
Other current assets = Rs. 5,000
Gross working capital = Rs. 55,000 + Rs. 10,000 + Rs. 80,000 + Rs. 25,000 + Rs. 5,000
Gross working capital = Rs. 1,75,000