What’s more important: Gross Working Capital or Net Working Capital?

I feel both the concepts have their own importance.

When you invest in Current Assets you consider the return or profit by increasing the money invested in Current Assets. If increase in Current Assets does not improve your return (i.e. by increase in profits generated by your business) off course you would be reluctant in investing in Current Assets. Here, you do not look at Gross or net Working Capital. Therefore, it is more of the business economics which depends on the rate of return from business and focuses on total Current Assets or Gross Working Capital.

The Net Working Capital has more relevance to your banker and your accountant. What happens if Current Assets are less than the Current Liabilities? It means even by selling the entire Currents Assets, your business will not be able to pay off its bank loans (availed for purchasing the Stocks) or pay off to your Vendors (who have supplied goods to you on credit terms). The difference between Current Assets and Current Liabilities reflects your business’s liquidity position or the solvency. It is therefore this net Working Capital concept which is more important to your creditors than the Gross Working Capital.