There are two types of capital needed for a business: fixed capital and working capital. Fixed capital refers to assets used for longer periods, while working capital refers to short-term capital used for day-to-day operations like cash, inventory, and debtors. Working capital can be categorized as gross working capital, which looks at total current assets, and net working capital, which considers current assets minus current liabilities and indicates liquidity. Within working capital, there is core/fixed working capital, which is permanently invested in minimum current assets, and variable working capital to address fluctuations.

1. Anjana Balachandran
MACFAST

2. Two types of capital are needed in
the business enterprise —
 Fixed Capital
 Working Capital

3.  Business operations demand few assets to
be used in the business for a longer period
of time, which are known as Fixed Assets.
 Capital invested in the acquisition of such
assets is known as FIXED CAPITAL.

4.  Capital is also needed for short-term
purposes, i.e. meeting day to day
operations.
 Capital invested for this purpose is
known as Current Capital or
Working Capital.

5. Thus, Working Capital refers to a firm’s
investment in short term assets like—
 Cash
 Short term Securities
 Debtors
 Inventories

6.  Gross Working Capital Concept
(Quantitative Aspect)
 Net Working Capital Concept
(Qualitative Aspect)

7.  Company’s investment in total current
assets signifies the Working Capital.
 Amount of Current Liabilities is not
considered and hence not deducted from total
Current Assets.
 This concept considers ‘Aggregate Current
Assets’ and ‘Working Capital’ as both
interchangeable terms.
Gross Working Capital is also known as
‘Circulating Capital’ or ‘Current Capital’.

8.  Current Assets minus Current Liabilities
is known as Working Capital.
 WC = CA – CL
 Positive WC = CA > CL
 Negative WC = CA< CL
Thus, the concept lays emphasis on
qualitative aspect which indicates the
liquidity position of the concern.

9. 1. Core, Permanent Or Fixed Working
Capital.
2. Fluctuating Or Variable Working
Capital.

10.  This is the irreducible minimum
amount necessary for maintaining
the circulation of the current assets.
 This is permanently locked up in the
business and therefore, it is referred
to fixed or Permanent Working
Capital.
 This is minimum level of current
assets which must be kept in order to
carry on the business.

11.  Theworking capital required in a firm,
over and above the fixed working capital.
Need for Variable Working Capital arise
on account of -
 Seasonal changes
 Abnormal and Unanticipated conditions
 To face tough conditions in the market
 To meet contingencies like strikes and
lockouts
 Special Advertising Campaigns or other
Promotional activities