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

Which of the following best describes 'net working capital' as used in financial management?

Net working capital is current assets minus current liabilities. It shows the part of current assets financed by long-term funds. Gross working capital, by contrast, means total current assets alone, so it does not deduct current liabilities and is a different measure.

  1. ATotal of fixed assets less long-term borrowings
  2. BCurrent assets less current liabilitiesCorrect
  3. CGross current assets only
  4. DCurrent liabilities less cash and bank balance

Explanation

Net working capital is the excess of current assets over current liabilities. Gross working capital is the total of current assets only, so the third option describes a different concept. The other options mix in fixed assets or ignore current assets.

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