Gross working capital is the total amount of current assets available to a company, specifically all those current assets which are readily convertible to cash (usually convertible within a year or less). Current assets include:
- Cash equivalents
- Short-term investments
- Accounts receivable
- Stock inventory and
- The portion of prepaid liabilities whill will be settled within a year
Note above cash equivalents is mentioned on 2nd place in the list, this is because it’s more liquid than short-term investments which is mention next on 3rd place. Liquidity of an asset is it’s ability to convert into cash. Therefore, those assets which are convertible into cash readily are more liquid while those assets which are convertible into cash but not as much fast are less liquid.
Consider the following balance sheet extract:
Britney Spears Computers has total current assets of $180,000 which is also known as Gross Working Capital.