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CMA Intermediate · Financial Management and Business Data Analytics · Introduction to Working Capital Management

Which statement correctly distinguishes gross working capital from net working capital?

Gross working capital means the total of all current assets, while net working capital is the excess of current assets over current liabilities. Thus the first option is right; the others reverse the definitions or involve fixed assets and long-term debt.

  1. AGross working capital is total current assets, while net working capital is current assets minus current liabilitiesCorrect
  2. BGross working capital is current assets minus current liabilities, while net working capital is total current assets
  3. CGross working capital equals fixed assets less long-term debt
  4. DNet working capital is the sum of current assets and current liabilities

Explanation

Gross working capital is the total investment in current assets (the quantitative concept). Net working capital is the excess of current assets over current liabilities (the qualitative concept). The other options reverse or misdefine these terms.

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