Working Capital | Types of Working Capital |

Working Capital         

Working Capital refers to the capital required for day to day operations. Working Capital is also known as Circulating Capital, Revolving Capital or Short Term Capital. It is a part of capital which is been required to hold the current assets of the business. The working capital may be in the form of cash or current assets. Working capital will be flowing in and out of the business and this cycle is called operating cycle.

Types of Working Capital

          Working Capital based on the requirements can be classified into eight types. They are

§  Gross Working Capital:

 It is also called simply “Working Capital” as it refers to the total of all the current assets of the business. Current Assets are the assets which can be easily converted into cash within a short duration.

§  Net Working Capital:

 It means the excess off current assets over current liabilities. It is the balance sheet accounting and quantitative concept. It is an indicator of financial soundness of an enterprise. It is suitable to sole trader and partnership firm.

§  Permanent Working Capital:

              Permanent Working Capital refer to minimum capital investment to be made in current assets. This capital is required in order to carry out the minimum activities of business. Thus it is also known as Regular Working Capital, Core Working Capital or Fixed Working Capital.

§  Temporary Working Capital:

           It is the working capital which is required by business above the permanent working capital. This capital is required as on most of the  occasions business activities exceed minimum activities.  This capital is purely dependent on the business activities fluctuations and does temporary working capital volume keeps fluctuating. . Thus is capital is also known as Fluctuating Capital or Variable Working Capital or Circulating Working Capital.

§  Balance Sheet Working Capital:

 The working capital which is been calculated on the items present in Balance Sheet.

§  Cash Working Capital:

 Working Capital which is been calculated on the basis of Profit and Loss A/c. This type of working capital is based on operating cycle concept.

§  Negative Working Capital:

  The excess of current liability over the current asset is called negative working capital.

§  Positive Working Capital:

 The excess of current asset over the current liability is called Positive Working Capital.