Types of Working Capital
To put it simply, working capital is the difference between what you owe and what you own right now. However, there are various kinds of operating capital, and each may be important for a business to fully understand its short-term needs.
1. Permanent Working Capital: A company’s permanent working capital is the sum of money it will always need to run its business without stopping. This is the bare minimum of short-term resources that are needed to keep things running.
2. Regular Working Capital: Normal working capital is a part of stable working capital. Being needed for day-to-day business, this part of permanent working capital is the “most important” part of permanent working capital.
3. Reserve Working Capital: The other part of fixed working capital is reserve working capital. Businesses might need extra working cash on hand in case of emergencies, changes in the seasons, or events they can’t plan for.
4. Fluctuating Working Capital: Businesses might only want to know what their flexible working capital is. As an example, companies may choose to pay for goods even though the cost changes over time. That being said, the business may have to pay a regular fee for insurance that it can’t refuse. When working capital changes, it only looks at the changeable debts that the company has full control over.
5. Gross Working Capital: A company’s gross working capital is equal to the sum of its present assets minus its short-term debts.
6. Net Working Capital: The difference between your current assets and current debts is your nett working capital.