Introduction

One of the most important area in the day to day management of the firm is the management of working capital. Working Capital management is the functional area of finance that covers all the current account of the firm. It is concerned with the management of the level of individual current assets as well as the management of total working capital.

Working capital is described as the capital which is not fixed but the more common uses of the working capital are to consider it as the difference between the book value of current assets and current liabilities. We know that financial management means the procurement of funds and effective utilization of these procured funds.

Meaning and Definitions

“Working capital means current assets” According to Mead, Baker, and Malott,

“The sum of the current assets is the working capital of a business” J.S.Mill.

MEANING OF WORKING CAPITAL

Capital divided into two major headings.

CAPITAL

Fixed capital means that capital, Fixed capital means which use for long period of time For example, Land, Building, Manufacturing Machinery and equipment, other equipment. purchase of permanent assets. Normally it consists of non-recurring in nature.

Working Capital is another part of the capital which is needed for meeting day to day requirement of the business concern. Working capital, also known as net working capital (NWC), is the difference between a company’s current assets, such as cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable. It can be easily converted into cash. Hence, it is also known as short-term capital.

Concept of Working Capital

Working Capital

A.Gross Working Capital

It Simply Known as working capital which implies a total of all current assets Gross Working Capital is a general concept which determines the working capital concept. Thus the gross working capital is the capital invested in total current assets of the business concern.

GWC = Gross Working Capital,

CA = Current Assets

GWC = CA

B.Variable/Temporary working capital: That working capital is required to meet the seasonal demands special unforeseen events. The demands which are of seasonal nature require inventory. More adequate cash is required to overcome fluctuation in the market, to eliminate competition, etc.

C.Net Working Capital: Net Working Capital including Current Asset and Current Liability

Net Working Capital is the excess of current assets over the current liability of the concern during a particular period. If the current assets exceed the current liabilities it is said to be positive working capital; it is reversed, it is said to be Negative working capital.

NWC = C A – CL

TYPES OF WORKING CAPITAL

Working Capital may be classified into three important types on the basis of time

Permanent Working Capital

It is also known as Fixed Working Capital. It is the capital; the business concern must maintain a certain amount of capital at a minimum level at all times. The level of Permanent Capital depends upon the nature of the business. Permanent or Fixed Working Capital will not change irrespective of time or volume of sales.

	Permanent Working Capital

Amount of
Working Capital	Time

Temporary Working Capital

It is also known as variable working capital. It is the amount of capital which is required to meet the Seasonal demands and some special purposes. It can be further classified into Seasonal Working Capital and Special Working Capital. The capital required to meet the seasonal needs of the business concern is called Seasonal Working Capital. The capital required to meet the special exigencies such as the launching of extensive marketing campaigns for conducting research, etc.

Semi-Variable Working Capital

A certain amount of Working Capital is in the field level up to a certain stage and after that, it will increase depending upon the change of sales or time.