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CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

In working capital management, which of the following correctly describes 'net working capital'?

Net working capital is current assets minus current liabilities. It shows the part of current assets financed from long-term sources. Gross working capital, by contrast, means the total current assets alone, without deducting current liabilities, so it is a different concept.

  1. ATotal of all current assets of the firm
  2. BCurrent assets minus current liabilitiesCorrect
  3. CCurrent liabilities minus current assets
  4. DFixed assets minus long-term liabilities

Explanation

Net working capital is the excess of current assets over current liabilities. Gross working capital refers only to total current assets, so the first option describes gross, not net, working capital.

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