Gross and Net Working Capital Assignment Help
An Introduction to the Concept of Gross and Net Working Capital
The subject comprises of two major concepts which is employed in the management working capital that is inclusive of Gross Working Capital and Net Working Capital.
- Gross Working Capital: This is an integral concept in accounting wherein gross working capital is valued as the sum total value of all the current assets that a company holds. This category of working capital is also valued as the overall amount for financing all the available current assets. But this kind of capital fails to clear the current position of a firm. Companies that take the path of borrowing current assets will surely get to expand their gross working capital but also dd on the business liabilities. This is why, borrowing won’t help in increasing the net working capital. So, this concept finds extensive application in the business community as raises assets valuation to borrow funds from all the external sources like banks and other financial institutions. Therefore, the formula stands as:
Gross Working Capital = Total Current Assets - Net Working Capital: It is an important accounting concept that represents additional current assets that can be valued much more than current liabilities. Such assets comprise of items such as bank balance, cash, debtors, stock, bills receivables, etc. Additionally, current liabilities are inclusive of creditors, bills payables, etc.
Definition of Gross and Net Working Capital – Explained in the BookMyEssay Gross and Net Working Assignment Help
Gross working capital is defined as sum of company’s current assets which are convertible to cash. A firm subtracts the company’s current liabilities to attain net working capital. This kind of capital refers to funds which are invested in current assets that are employed by each business concern. It is an ongoing concern concept which facilitates the financial planner to deliver complete amount of working capital given at the correct time. So, business operations do not get interrupted wherein the return on capital investment gets maximized. The investment amount that is calculated in the current assets which does not provide indication of the firm’s financial position. In order to truly assess a firm’s financial strength, its essential to view current assets with respect to current liabilities.
Net working capital is represented by calculating the difference between current assets and current liabilities. Working capital is precisely defined as “capital in existing use in business operations”, i.e., in this current asset is valued over current liabilities. The net working capital concept facilitates in determining short-term financial solvency and soundness of a firm. One gets to compare amount of current liabilities with current assets amount, it is done to ascertain the firm’s ability to discharge short-run obligations from the liquidity viewpoint.
Net Working Capital may be set as positive or negative. When positive net working capital arises is equals to current assets that exceed current liabilities. It can also be calculated as negative working capital that occurs when current liabilities which is in excess of current assets. It is also remarked as a qualitative concept that showcases the character of sources wherein funds that are procured to lend support to specific portion of current assets which is valued in add on to liabilities.
Gross and Net Working Capital Assignment Writing Help – Ways to Increase Working Capital
A firm has the option of escalating the cash-flow conversion cycle which helps it in increasing working capital. Some of these methods that help firm in boosting the reputation:
- It helps in cleaning out vacant inventory by returning the supplies to suppliers or selling the stock at discounts.
- A firm that can become much more aggressive to get a vast collection of outstanding receivables
- It aims to limit shorten the credit payment terms to the customers
- It minimises inventory levels by employing the just-in-time purchases
- A firm can ask its suppliers to cover accounts payable terms
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