1.

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

2.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.

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. 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. 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.

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. 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.