10 (a) Answer :

Working capital is the most important component of a business that represents the liquidity
available to a business enterprise for managing day-to-day operations. Working capital is
calculated by deducting current liabilities from current assets.

Working capital = Current Assets – Current Liabilities.

A business always aims to have positive working capital, as it showcases its ability to meet
the short-term requirements and retain its competitive advantage in the market.

Therefore, working capital management is very important to maintain an adequate level of

funds, neither excessive nor inadequate.

The different types of working capital are:-

There are many types of working capital a business has to maintain based on value and
periodicity. Let’s have a detailed look.

(i)Based on Value

● Gross Working Capital: It refers to the sum invested in the current assets of the
business like cash, account receivable, inventory, marketable securities and
short-term securities.

● Net-Working Capital: It indicates the surplus-value of the current asset after

deducting it from current liabilities.

The current assets here refer to cash, inventory, raw-material and account receivable. And,
current liabilities include accounts payable.

(ii)Based on Periodicity

● Permanent Working Capital: It is also referred to as fixed working capital and is the
minimum working capital that a company has to keep in order to carry on business
operations without any interruption or difficulty. For example, minimum cash required
 to keep the operations run smooth. The amount of permanent working capital
depends on the size and growth prospects of the business.

● Regular Working Capital: It is the amount of funds required by businesses to fund

the day to day operations of the business. For example, cash required for making
payment of salaries, wages, raw materials, etc.

● Variable Working Capital: Also referred to as fluctuating working capital, the funds
are invested for a temporary period which varies with the respect to change of size
of business or change in assets of the business.

● Reserve Margin Working Capital: The reserve working capital is maintained over
and above the regular working capital requirements and is kept as a contingency for
meeting expenses during unexpected situations like strike, natural calamities,
damage to business properties, etc.

● Seasonal Variable Working Capital: As the name suggests, it is the amount of

working capital kept aside to meet the peak seasonal demand if the business is
seasonal. For example, manufacturing woolen cloth.
10 (b) Answer :