What is working Capital? | What do you mean by working capital?

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 Working Capital is describe as the capital  which is not fixed but the more common uses of the working capital is to consider it as the difference between the book value of current assets and current liabilities. Working capital is need for meeting day to day requirement of business. For example payment to creditors, salary paid to workers, purchase raw materials etc.

Working capital can be classified into two parts

Gross working capital

Net working capital

Gross Working Capital is the general concept, which consider both current assets and current liability of business.

Net working capital is the excess of current assets over the current liabilities of business during a particular period.

Components of working capital

Current Assets and current liabilities

Current Assets; Cash in  Hand, cash at bank, Bills receivable, Sundry debtors,  short term loan advances, inventories, Prepaid expenses, Accured income.

Current Liabilities: Bills Payable, Sundry Creditors, Outstanding expenses, Short term and advances Bank over draft, provision for Taxation.

Types of Working Capital: 

There are three types of working capital

Permanent working capital

Temporary working capital

Semi Variable working capital

Permanent Working Capital

It is also known as fixed working capital, it is the capital which business must maintain at minimum level all the times. The level of permanent capital is depends upon the nature of business.  Permanent or Fixed working capital will not change time to time or irrespective volume of sales.

Temporary working Capital is the capital which is required for seasonal purposes or special purposes

Semi variable working capital is the capital which v will be increase or decrease upon valume of sale.

Need of working Capital

Purchase of Raw Material and spares

Payment of wages and salary

Day to day Expenses

Provide Credit Obligations

Factors determining Working capital requirements

Natures of business

Production Cycle

Business cycle

Production Policy

Credit policy

Growth & Expansion

Availability of Raw materials

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