Gross Working Capital is an important overall financial calculation business owners, investors and financiers use to assess a company’s liquidity and success. Specifically, Gross Working Capital is an aggregate measurement of a company’s current assets (assets which will be converted to cash within one year).
These assets are traditionally divided into three types: accounts receivable, inventory and marketable securities.
Accounts receivable track the money a company is owed from its customers. Examples of accounts receivable include open invoices, payments on account, short-term notes and more.
Inventory is any part of a company’s goods and products available for sale. This includes finished good products, raw materials and any products that are in the production or packaging process.
Marketable securities are investments or financial instruments a company holds with the expectation of selling them at a later date. Since these investments easily can be converted to cash, they are counted as liquid assets.
Though Gross Working Capital gives an indication of a business’s financial health, it can be difficult to use as an absolute measure. For example, an increase in Gross Working Capital could come from a stock of aging goods that have not been sold for years, resulting in a rise of inventory. This is why investors look at both current assets and current liabilities to get a better glimpse of a company’s capability to pay debts in the near future.
Using this formula we can get the value of Working Capital = Current Assets – Current Liabilities. This is a much more dynamic metric that gives a much simpler understanding of a company’s liquidity and its ability to pay off debts. The value of working capital is how much assets a company has to cover its current liabilities.
Gross Working Capital is a valuable tool to assess a company’s performance at any point. However, understanding how it changes over time gives a much larger snapshot of a company’s performance. Comparing Gross Working Capital to competitors in the same field provides investors and owners an idea of how their company stacks up against its peers.
In conclusion, Gross Working Capital provides a business owner, financier and investor an indication of a company’s short-term solvency. Although a static number, Gross Working Capital is more valuable when a business can track changes over time or compare numbers against competitors. Properly assessing Gross Working Capital and understanding its changes gives a larger picture of a company’s changes and can be used as a great indicator of potential future success.
These assets are traditionally divided into three types: accounts receivable, inventory and marketable securities.
Accounts receivable track the money a company is owed from its customers. Examples of accounts receivable include open invoices, payments on account, short-term notes and more.
Inventory is any part of a company’s goods and products available for sale. This includes finished good products, raw materials and any products that are in the production or packaging process.
Marketable securities are investments or financial instruments a company holds with the expectation of selling them at a later date. Since these investments easily can be converted to cash, they are counted as liquid assets.
Though Gross Working Capital gives an indication of a business’s financial health, it can be difficult to use as an absolute measure. For example, an increase in Gross Working Capital could come from a stock of aging goods that have not been sold for years, resulting in a rise of inventory. This is why investors look at both current assets and current liabilities to get a better glimpse of a company’s capability to pay debts in the near future.
Using this formula we can get the value of Working Capital = Current Assets – Current Liabilities. This is a much more dynamic metric that gives a much simpler understanding of a company’s liquidity and its ability to pay off debts. The value of working capital is how much assets a company has to cover its current liabilities.
Gross Working Capital is a valuable tool to assess a company’s performance at any point. However, understanding how it changes over time gives a much larger snapshot of a company’s performance. Comparing Gross Working Capital to competitors in the same field provides investors and owners an idea of how their company stacks up against its peers.
In conclusion, Gross Working Capital provides a business owner, financier and investor an indication of a company’s short-term solvency. Although a static number, Gross Working Capital is more valuable when a business can track changes over time or compare numbers against competitors. Properly assessing Gross Working Capital and understanding its changes gives a larger picture of a company’s changes and can be used as a great indicator of potential future success.