Question

Distinguish between : Gross working capital and net working capital.

Answer 1

Gross working capital v/s net working capital.

Points of differences	Gross working capital	Net working capital
1. Meaning	It is the sum total of current assets such as bill receivables, debtors, short term marketable securities, bank balance, cash, etc.	It is current assets minus current liabilities.
2. Liquidity position	This concept does not give an idea about the liquidity position of the company.	This concept gives an idea how much liquidity the company has.
3.Finacial position and measurement	Does not give a true idea of the financial position of the company.	Gives the true idea of financial position of the company.
4.Increase in current liabilities	Increase in current liabilities does not increase the gross working capital. (Reason: Gross working capital is only concerned with current assets and not liabilities.)	Increase in current liabilities decreases net working capital.