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classifications of working capital

1. Basis of concept  GROSS WORKING CAPITAL : require that a firm have adequate investment in current assets and proper management of theses asset. It should be neither excessive nor inadequate asset. If there are surplus funds they should be immediately invested, and if the funds become low and the requirement is greater the financial manager should be able to get the required finance so that the commitments of the firm can be made short notice.  NET WORKING CAPITAL : It is the difference between current asset and current liabilities. When current asset are higher than current liability NWC will be positive, but if current liabilities exceed current assets NWC.  The current asset should as a rule maintain a ratio of 2:1 with current liabilities.  NWC explain the management of financing of working capital through the financing of long-term and short term funds.  NWC= Current Assets – Current Liabilities  CA= cash + marketable securities + accounting receivables + notes and Bills Receivables + Inventories  CL = Accounts Payable + Notes and Bills + Outstanding Expenses + Short Term Loans

  Charactertics: It is an extra working capital needed to changing production and sales activities.  It fluctuates according to the level of operations.  Temporary working capital is fluctuating during the operating period  It is needed for shorter period.BASIS OF TIME  PERMANENT OR REGULAR WORKING CAPITAL : Permanent working capital is the minimum level of current assets which is continuously required by a firm for carrying out its business activities and that cannot be converted into cash in normal course of business. refrigerators or coolers may need extra funds to carry on production and to accumulate stock before the sales operations. purchase of goods for stock in view of future increase in price etc.  Grows the size or volume of business operation. Permanent working capital is either constant or it increase with the size of the business or its scale of operations.  TEMPORARY OR VARIABLE WORKING CAPITAL : Any amount over and above the permanent level of working capital is temporary working capital. it has to be financed from short-term sources like bank loan etc.  Charactertics:  Continue to exist for a longer period of time is the business activities. strike. war etc. Specific working capital: Specific working capital is that part of working capital which is required to meet unforeseen contingencies like slump.2. For example. Additional working capital is to be arranged to meet special exigencies such as launching of extensive marketing campaign. a manufacture of woolen textiles. Two types of temporary working capital  Seasonal working capital.  Specific working capital.  Constantly changes in the business from one asset to another.Seasonal working capital being of short-term nature. It keeps on fluctuating from time to time as per the changes in production and sales activities. flood.  It is created to meet liquidity requirements.    Seasonal working capital: The capital required to meet the seasonal demands of the enterprise is called seasonal working capital.  .