# Gross Working Capital: Definition, Calculation, Example, vs. Net

![Gross Working Capital](https://www.investopedia.com/thmb/i0wGx-Or90zC66d5aom7j1p02YE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/grossworkingcapital-final-a3bcdf696abd4a57855de52e78f0fe2b.png)

*— Investopedia / Zoe Hansen*

## What Is Gross Working Capital?

Gross working capital is the sum of a company's current assets (assets that are convertible to cash within a year or less). Gross working capital less current liabilities is equal to net working capital, or simply "[working capital](https://www.investopedia.com/terms/w/workingcapital.asp);" a more useful measure for balance sheet analysis.

### Key Takeaways

*   Gross working capital is the total value of a company's current assets.
*   Gross working capital includes accounts receivable, inventory, and marketable securities.
*   On its own, gross working capital is not useful, as it does not give a full picture of a company's liquidity.
*   Including current liabilities into the equation results in calculating working capital, which is a true picture of a company's liquidity and its ability to meet its short-term obligations.
*   Like other financial measurements, gross working capital also has more value when a company tracks its changes over time or compares its figures to its competitors.

## Understanding Gross Working Capital

Gross working capital, in practice, is not useful. It is just one-half of a picture of a company's short-term financial health and the ability to use short-term resources efficiently. The other half is [current liabilities](https://www.investopedia.com/terms/c/currentliabilities.asp). Gross working capital, or [current assets](https://www.investopedia.com/terms/c/currentassets.asp), less current liabilities, equates 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 (e.g., > 1.0).

If this ratio is less than 1.0, then a company may have trouble paying back its creditors in the short term. [Negative working capital](https://www.investopedia.com/ask/answers/100915/can-working-capital-be-negative.asp) is when liabilities outstrip assets and indicate that a company may be in distress. 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 use elsewhere. With too little working capital, a company may not be able to meet its day-to-day cash requirements. Managers aim for the correct balance through [working capital management](https://www.investopedia.com/terms/w/workingcapitalmanagement.asp).

Some methods by which a company can improve its working capital ratio include a reduction in time to collect receivables from customers, extending payable time frames with suppliers, a reduction in reliance on short-term debt, and appropriately managing inventory levels.

> **Important**
>
> Gross working capital is used to gauge a company's liquidity as it helps assess a company's short-term ability to meet debt obligations. It is less of a gauge of solvency or the long-term financial health of a company.

## What's Included in Gross Working Capital?

Gross working capital includes assets such as cash, accounts receivable, inventory, [short-term investments](https://www.investopedia.com/terms/s/shorterminvestments.asp), and [marketable securities](https://www.investopedia.com/terms/m/marketablesecurities.asp). Unlike net working capital, gross working capital omits liabilities and only focuses on what the company owns. Gross working capital is the sum of current assets including:

*   Cash and cash equivalents
*   Marketable securities
*   Accounts receivables to be collected within the next year
*   Interest receivable to be collected within the next year.
*   Inventory expected to be sold within the next year
*   Other assets owned by the company expected to yield economic benefit within the next year.

### Note

Like other financial measurements, gross working capital is most useful when tracked over time or compared against competing companies.

## 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 financial analysis to assess the short-run financial condition of a company. Sometimes it 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 example, Company ABC reported gross working capital of $7 billion at the end of the fourth quarter of 2023, versus $7.23 billion in current liabilities, for a working capital ratio of 0.97. The bulk of current liabilities is coming from the short-term debt of $3 billion.

At the end of the third quarter of 2024, ABC had paid off its entire $3 billion in debt without taking on more debt. Gross working capital stood at $7.8 billion and current liabilities stood at $5 billion, resulting in a working capital ratio of 1.56. Between the end of 2023 and September 2024, the company repaid its short-term debt, thereby reducing current liabilities and sending the working capital ratio comfortably above 1.0.

### Gross Working Capital of Microsoft

On its June 30, 2024 balance sheet, Microsoft reported $159.73 billion of total current assets. This was comprised of cash, cash equivalents, short-term investments, accounts receivable, inventories, and other current assets. The company reported total assets of $512.16 billion, though all long-term assets are excluded from gross working capital.  

Microsoft also reported $125.29 billion of total current liabilities. While this amount would be subtracted from current assets to arrive at net working capital, it is excluded from consideration for gross working capital. Therefore, as of June 30, 2024, Microsoft carried $159.73 billion of gross working capital.

## What Is Gross Working Capital?

Gross working capital is a company's net working capital before current liabilities have been deducted. It is the value of the gross amount of current assets a company owns that can be used to satisfy its short-term obligations.

## How Do You Calculate Gross Working Capital?

Gross working capital is calculated in the same way as total current assets. It is the sum of current assets including cash, cash equivalents, receivables to be collected within one year, inventory (also assumed to be sold within a year), and other short-term assets.

## What Is the Difference Between Gross Working Capital and Net Working Capital?

Gross working capital reflects a company's working capital prior to subtracting a company's short-term debt. Net working capital reflects a company's working capital after short-term debt has been omitted. Gross working capital only includes current assets, while net working capital reflects both current assets and current liabilities.

## The Bottom Line

Gross working capital is the total value of a company's current assets. It provides insight into the short-term liquidity of a company but is particularly useful when assessed with current liabilities to determine net working capital.

Net working capital is a better metric for evaluating a company's ability to meet its short-term obligations, showing its capital management abilities and financial stability.

> **Article Sources**
>
> 1.  BDC. "[How to Manage Working Capital in a Growing Business](https://www.bdc.ca/en/articles-tools/money-finance/manage-finances/using-working-capital-ratio)."
>     
> 2.  Microsoft Investor Relations. "[Earnings Release FY24 Q4](https://www.microsoft.com/en-us/investor/earnings/FY-2024-Q4/press-release-webcast)."