Question

Which of the following is not included while calculating Gross working capital?

• A. Cash
• B. Inventory
• C. Short-term loans
• D. Accounts Receivable

Hint:

$$\text{\textbf{Gross} Working Capital} = \text{\textbf{ONLY Current Assets}}$$ $$\text{\textbf{Net} Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$ Never mix liabilities into gross calculations; gross working capital is strictly an asset-based metric.

Answer 1

The Correct Option is C

Step 1: Defining Gross Working Capital:
In corporate finance, Gross Working Capital represents the total capital invested in a business's current assets. Current assets are short-term resources that are expected to be converted into cash within one fiscal year or operating cycle.

Step 2: Examining the Components of Working Capital:
The mathematical relationship is defined as: Gross Working Capital = \sum Current Assets Where Current Assets include:

• Cash & Cash Equivalents: Physical currency and liquid bank balances.
• Inventory: Raw materials, work-in-progress, and finished stock.
• Accounts Receivable (Debtors): Outstanding customer payments for sales made on credit.
• Prepaid Expenses: Payments made in advance for services yet to be received.

Step 3: Evaluating the Options:
Options (A), (B), and (D) are current assets and are included in Gross Working Capital. Conversely, “Short-term loans” (C) represent a current liability, as they are short-term obligations that must be repaid within a year. Current liabilities are only used when calculating Net Working Capital: Net Working Capital = Current Assets - Current Liabilities Because short-term loans are liabilities, they are excluded from Gross Working Capital. Thus, (C) is the correct option.