Guidance and Knowledge for Value Investors
Gross working capital refers to the value assigned to current assets. Net working capital refers to gross working capital less current liabilities. This term is rarely used in business due to its mistaken definition and the fact that current assets are often committed to payment of liabilities and therefore not truly available as working capital.
The college textbook definition of working capital is current assets minus payables and accrued expenses. The term explains the dollar value of flexibility a business operation has to take advantage of immediate opportunities or endure sudden or long-term setbacks. Since it is a balance sheet based formula the value is a function of a moment in time.
Cash is the lifeblood of every business. Without cash a business operation can come to a standstill. Cash is one component of working capital, a term referring to current assets (Gross Working Capital) less payables and accrued expenses.