What is 'Gross Working Capital'
Gross working capital is the sum of all of a company's current assets (assets that are convertible to cash within a year or less). Gross working capital includes assets such as cash, accounts receivable, inventory, shortterm investments and marketable securities. Gross working capital less current liabilities is equal to net working capital, or simply "working capital," a more useful measure for balance sheet analysis.
BREAKING DOWN 'Gross Working Capital'
Gross working capital, in practice, is not useful. It is just one half of a picture of a company's shortterm financial health and ability to use shortterm resources efficiently. The other half is current liabilities. Gross working capital, or current assets, less current liabilities equate to working capital. When working capital is positive, it means that current assets are greater than current liabilities. The preferred way to express positive working capital is the ratio of current assets to current liabilities (i.e., > 1.0). If this ratio is not greater than 1.0, then it may have trouble paying back its creditors in the shortterm, whether a bank or supplier or other party to which the company has financial obligations. Negative working capital may a sign of distress that could grow. Perhaps the underlying problem is a decline in sales, which would reduce accounts receivable or force an accumulation in the accounts payable account (part of current liabilities) as the company finds it more difficult to pay its bills on time.
A company needs just the right amount of working capital to function optimally. With too much working capital, some current assets would be better put to other uses. With too little working capital, a company may not be able to meet its daytoday cash requirements. Managers will aim for the correct balance through working capital management.
Example of Gross Working Capital
An examination of gross working capital versus current liabilities provides many insights into a company's operations. The changes in the components of current assets and liabilities from period to period can lead to further analysis to assess the shortrun financial condition of a company. Sometimes there may be a surprise to an investor that a working capital ratio fell below 1.0. Breaking down the components and following the money would explain why.
For instance, Danaher Corp. reported gross working capital of $6.67 billion as of the end of the fourth quarter of 2016, versus $6.87 billion in current liabilities, for a working capital ratio of 0.97. At the end of the third quarter in 2017, the ratio stood at 1.43. Between the end of 2016 and September 2017, the company repaid a significant amount of a shortterm loan, thereby reducing current liabilities and sending the working capital ratio comfortably above 1.0.

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What does a low working capital ratio show about a company's working capital management?
Find out the significance of working capital management for a company and look at the working capital ratio analysts use ... Read Answer >> 
What can working capital be used for?
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