What are the different types of working capital?
Working capital helps in running business operations smoothly. The different types of working capital include the following.
1. Permanent working capital
The minimum working capital required for a business is called permanent, fixed or hardcore working capital. The available amount must not fall below this allocated threshold for smooth operations.
2. Gross and net working capital
Gross working capital amounts to the business investment allocated for current assets. It is easy to convert these assets into cash within the business’s operating cycle. A business’s net working capital is the difference between gross working capital and current liabilities.
3. Temporary working capital
Temporary or variable working capital is the difference between networking and permanent working capital, closely related to the overall sales and production. It is also called fluctuating working capital as it changes as per the business operations and market.
4. Negative working capital
When calculating the networking capital, it either leads to a surplus or deficit. A shortfall or deficit is negative working capital and reflects an excess of current liabilities over current assets.
5. Reserve working capital
Reserve working capital is a type of fund a business maintains over and above the required working capital. Companies use such funds as a contingency for unexpected market situations or opportunities.
6. Regular working capital
Regular working capital is the minimum working capital a business needs to run its daily operations. Companies must maintain the appropriate level of average working capital for stable operations.
7. Seasonal working capital
Businesses producing products or providing services with seasonal demands need to maintain a seasonal working capital. It is considered a form of reserve working capital, but only to adapt to seasonal fluctuations in the market.
8. Special working capital
Special working capital is the fund for business development and other urgent functions based on requirements and circumstances.
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