Kind of Working Capital

Principle & Practice of Management

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Kind of Working Capital

Working Capital Types

Working Capital Types

The categorization of working capital can be made either based on its concept or the need to maintain current assets either permanently and/or temporarily. As per conceptual view, it may be classified into gross working capital or net working capital, which were already explained in detail. There are Working Capital Types :

Permanent Working Capital

Permanent working capital is the minimum investment kept in the form of inventory of raw materials, work-in-process, finished goods, stores and spares, and book debts to facilitate uninterrupted operation in a firm. Though this investment is stable in short run, it certainly varies, in the long run, depending upon the expansion programmes undertaken by a firm. It may increase or decrease over a period of time. The minimum level of current assets maintained in a firm is usually known as permanent or regular working capital. [ Working Capital Types ]

Temporary Working Capital

A firm is required to maintain additional current assets temporarily over and above permanent working capital to satisfy cyclical demands. Any additional working capital apart from permanent working capital required to support the changing production and sales activities is referred to as temporary or variable working capital. In other words, an amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. At times, additional working capital is required to meet the unforeseen events like floods, strikes, fire, and price hike tendencies and contingencies. [ Working Capital Types ]