This document discusses different types of working capital. It defines working capital as the capital required to finance short-term assets like cash, inventory, and accounts receivable. There are two main types of working capital: gross working capital, which refers to the total investment in current assets, and net working capital, which is current assets minus current liabilities. Net working capital indicates a firm's ability to meet short-term obligations, while gross working capital simply measures total current assets. Working capital can also be classified as permanent/fixed or temporary/variable depending on whether it is needed continuously or fluctuates over time. Temporary working capital includes seasonal working capital needed for periodic demand fluctuations and specific working capital for unexpected needs.

1. CLASSIFICATION OF
WORKING CAPITAL
PRESENTED BY:
ALEENA CHACKOCHAN
MACFAST

2. WORKING CAPITAL
Working Capital refers to that part of the firm’s
capital, which is required for financing short-term or
current assets such as cash marketable securities, debtors
and inventories. Funds thus, invested in current assets
keep revolving fast and are constantly converted into cash
and this cash flow out again in exchange for other current
assets. Working Capital is also known as revolving or
circulating capital or short-term capital.

3. TYPES OF WORKING CAPITAL
WORKING CAPITAL
BASIS OF
CONCEPT
BASIS OF
TIME
Gross
Working
Capital
Net
Working
Capital
Permanent
/ Fixed
WC
Temporary
/ Variable
WC
Special
WC
Seasonal
WC

4. GROSS WORKING CAPITAL
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.

5. 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.

6. DIFFERENCE BETWEEN NET WORKING
CAPITAL AND GROSS WORKING CAPITAL
Net Working Capital Gross Working Capital
1. NWC is the concept of qualitative
nature.
2. It is indicating the firm’s ability to meet
its operating expenses and current
liability.
3. It expressed as current asset minus
current liability.
4. It is concept very popular in accounting
system.
5. Net concept suitable for sole trader
and partnership firms.
6. It is very useful to find out true the
financial position of a company.
7. Increase in bank loan cannot increase
working capital. Retained profits, sale of
fixed assets will increase net working
capital.
1. GWC is the concept of quantitative
nature.
2. It is pointing out the total amount
available for financing the current
assets.
3. It indicating the total sum of current
assets.
4. It is a concept very popular in financial
management.
5. Gross concept suitable for companies.
6. It cannot reveal the true financial
position of a company.
7. Every increase in borrowing will
increase the gross working capital.
Under net concept, no change in
working capital.

7. 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.
Permanent working capital is either constant or it
increase with the size of the business or its scale of
operations.
Charactertics:
 Continue to exist for a longer period of time is the
business activities.
 Constantly changes in the business from one asset to
another.
 Grows the size or volume of business operation.

8. TEMPORARY OR VARIABLE
WORKING CAPITAL
Any amount over and above the permanent level of
working capital is temporary working capital. It keeps on
fluctuating from time to time as per the changes in
production and sales activities.
Charactertics:
 It is an extra working capital needed to changing
production and sales activities.
 It is created to meet liquidity requirements.
 It fluctuates according to the level of operations.

9.  Temporary working capital is fluctuating during the
operating period.
 It is needed for shorter period.
Two types of temporary working capital
• Seasonal working capital.
• Specific working capital.

10. SEASONAL WORKING CAPITAL
The capital required to meet the seasonal
demands of the enterprise is called seasonal working
capital.
For example, a manufacture of woolen textiles,
refrigerators or coolers may need extra funds to carry on
production and to accumulate stock before the sales
operations.
Seasonal working capital being of short-term
nature, it has to be financed from short-term sources like
bank loan etc.

11. SPECIFIC WORKING CAPITAL
Specific working capital is that part of working
capital which is required to meet unforeseen contingencies
like slump, strike, flood, war etc.
Additional working capital is to be arranged to
meet special exigencies such as launching of extensive
marketing campaign, purchase of goods for stock in view
of future increase in price etc.

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