Question

Answer the question.
Briefly explain any four types of working capital required by a business concern.

Answer 1

Working capital means the capital invested in working assets or current assets such as cash, stock of goods, debtors and short term investments, etc.

The various types of working capital are:

Permanent Working Capital: It refers to the minimum amount of working capital required permanently to operate the minimum level of business activity. It determines the financing requirement in the case of fixed assets is simply the cost of the asset. It is of two types: Initial and Regular working capital.

Variable Working Capital: It is the difference between networking capital and permanent working capital. The amount of temporary’ working capital depends upon the extent of extra demand in season. It is of two types: seasonal and special working capital.

Gross Working Capital: Gross working capital refers to the total amount of funds invested in the current assets.
Gross Working Capital = Book value of current assets Working Capital: Networking capital means the excess of current assets over current liabilities. Current assets include cash at bank, sundry’ debtors, cash in hand, bills receivable, etc. Current liabilities include bills payable, sundry creditors, short term loans, etc.
Net Working Capital = Current assets – Current liabilities