Types of Working Capital

  1. Gross working capital: gross working capital is equal to total current assets. Items of current assets are like stock of raw material, Work-in-progress, finished goods, spares and consumable stores, debtors, bills receivable, cash and bank balance, accrued income, prepaid expenses, advance payment, short term investment etc.
  2. Net working capital: net working capital is the excess of current assets over current liabilities. Thus, net working capital = current assets – current liabilities. In other words the value of the gross working capital is reduced in current liabilities
  3. Positive working capital: when the current assets are more than the current liabilities such a situation is known as positive working capital.
  4. Negative working capital: when the current liabilities are more than the current assets such a situation is known as negative working capital.
  5. Zero working capital: when the investment in current assets is exactly equal to the current liabilities such a situation is known as zero working capital.
  6. Variable working capital: variable working capital is of 3 types and it’s influenced by seasonal fluctuation.
    1. Seasonal working capital: it is the amount of working capital to meet the demands of seasonal requirements, during the season more working capital is required and during the off season less amount of working capital is required.
    2. Special working capital: in order to meet unforeseen eventualities such as strikers, floods, riots, sudden increase in demand, war etc.
    3. Peak working capital: the variable working capital keeps on fluctuating. Peak working capital is the highest amount of working capital required by a business organization during course of operation.
  7. Permanent working capital: it represents the amount of capital locked up in the business on a continuous basis so long as it continues to exist. Permanent working capital is of 2 types.
    1. Initial working capital: it is the amount of working capital required at the inception of the business.
    2. Regular working capital: it refers to the excess of current assets over current liabilities. A business enterprise has to keep a minimum stock of materials, finished goods and cash in order to meet its immediate obligations as well as to ensure its smooth working.
  8. Balance sheet working capital: it’s the difference between the current assets and current liabilities as per the balance-sheet prepared at the end of the financial year. The concept of balance-sheet working capital is static in nature as it does not reveal the flow of money occurring between the two balance sheet dates.
  9. Cash working capital: it refers to the working capital which is available in cash or cash resources. It is reflected by the items contained in the income statement in between the two balance sheet dates. It reveals the operational inflow as well as outflow of cash.

About Falguni Paleja

FALGUNI PALEJA SYBAF student from Nirmala memorial foundation college kandivali (E)
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