Gross working capital refers to firms:

Correct option is A

Gross working capital is the total amount of a firm's current assets. It represents the sum of all short-term assets that can be converted into cash within a year. These current assets include cash, accounts receivable, inventory, marketable securities, and other liquid assets.

The concept of gross working capital is essential in financial management as it helps businesses assess their short-term financial health. A high gross working capital indicates that a firm has enough resources to meet its short-term obligations and operate smoothly. However, it does not consider the liabilities of the firm, making it different from net working capital, which is calculated as current assets minus current liabilities.

Information Booster:

• Gross working capital is the total value of a firm's current assets.

• It includes cash, accounts receivable, inventory, marketable securities, and prepaid expenses.

• Helps businesses evaluate their ability to meet short-term obligations.

• Unlike net working capital, it does not consider liabilities.

• A higher gross working capital indicates better liquidity and smooth business operations.

• Proper handling of current assets ensures a steady cash flow and avoids financial difficulties.

• Investors and creditors assess gross working capital to evaluate a company's financial health.

Additional Knowledge:

1. (2) The difference between current assets and current liabilities

   • This defines Net Working Capital (NWC), not Gross Working Capital.

   • NWC = Current Assets - Current Liabilities.

   • A positive NWC indicates good liquidity, while a negative NWC suggests potential financial trouble.

2. (3) Total liquid assets

   • Liquid assets refer to assets that can be quickly converted into cash, such as cash, marketable securities, and receivables.

   • Gross working capital includes all current assets, not just liquid ones.

   • Inventory and prepaid expenses are current assets but not fully liquid.

3. (4) Total investment in the firm

   • This refers to the overall capital invested in a business, including fixed assets, long-term investments, and equity.

   • Gross working capital only focuses on short-term assets, not long-term investments.​