The different types of working capital include –
1. Permanent Working Capital
It is also known as fixed working capital or hard core working capital. Every business must allocate a fixed amount of funds as working capital. Available capital must not fall below this threshold. This minimum level of working capital is called permanent or fixed working capital.
2. Temporary Working Capital
The difference between the net working capital and permanent working capital can be termed as temporary or variable working capital. It is also called a variable or fluctuating working capital and changes as per the business’s operations and market situations. Also, it is closely related to the overall sales or production of a business.
3. Gross & Net Working Capital
Gross working capital amounts to business investment allocated for current assets. These assets are easy to convert within the business’s operating cycle.
A business’s net working capital is the difference between gross working capital and current liabilities.
4. Negative Working Capital
Calculation of net working capital results in either a surplus or a deficit. A shortfall or deficit is known as negative working capital and reflects an excess of current liabilities over current assets.
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