Knowing what is working capital as the difference between a company’s current assets and current liabilities is not all that matters. There is much more to know about the various types of working capital to make a proper working capital management possible.
A deep note into the different types can be seen here:
1. Permanent working capital: this denotes the basic amount of investment which is required at all time to carry out the business. This value of current assets keeps increasing or decreasing over a period of time. But there is a minimum level of assets needed at all times. Only long-term funds are used for permanent working capital.
2. Temporary working capital: also know as fluctuating working capital or varied working capital. This is based on the production and sales of the company which is different throughout the year like more production and estimated production on forecasted demand. Such changes can alter the working capital. This is also termed as extra working capital.
3. Gross and Networking capital: gross working capital is a measure of the current assets invested in a business and networking capital is the measure of current assets over the measure of current liabilities in a business. But gross working capital is always [preferred as it helps in the immediate procurement of the resources.
4. Negative working capital: this is a rare case, where the current assets are lesser than the current liabilities which will fetch a negative amount of working capital which will indicate that the firm is soon going to face a financial crisis.
5. Reserve working capital: this is also known as cushion working capital. These refer to short-term availabilities made when a crisis or need arises. Every business operates with some amount of risks that are controllable and uncontrollable. Thus to recover from such uncontrollable risk this type of reserve working capital is maintained.
6. Regular Working capital: the amount of working capital which is maintained in a normal business cycle is termed as regular working capital.
7.Seasonal Working Capital: there are some products which have very high demand during certain seasons and for this period an amount if working capital is called seasonal.
8. Special working capital: certain special programs may be planned for business development purposes like advertisement campaigns, product development activities, sales promotion activities and expansion of markets. Thus this Special working capital is used to meet such special programmes of the company.
This completes the extensive study of the various types of working capital and the time of their need for a business.