Wouldn`t it be easier to start and manage your business as an entrepreneur or a solopreneur had there been a problem-solving course on working capital management?
Wouldn`t it be wonderful to have a course that enables you to understand the concept of Working Capital Management in an easy-to-understand language? Fortunately, you can understand the basics of Working Capital Management and a lot more in this article.
What is Working Capital?
Considered as one of the most crucial components, working capital is vital for a smooth business operation. In simple words, it is the difference between the company`s current assets (cash, inventory, marketable securities, and receivables) and liabilities (rent, bills, and other expenses).
It represents a company`s operational activities and includes inventory, accounts receivable & payable, cash, and short-term debt.
How is it beneficial for a business?
Working capital is a vital factor for both business owners and financial professionals. An effective financial tool, the working capital gives an exact picture and a fair idea about a business` short-term financial standing. It also ensures the efficient use of all the components of current assets and liabilities to reduce the overall cost.
Types of Working Capital
Depending on the time, there are eight types of working capital in India:
- Permanent Working Capital
Also known as fixed working capital, the permanent working capital consists of minimum current assets that are required to run the business operations smoothly. However, the size of the WC depends on production scale and growth.
- Variable Working Capital
The amount that is invested in a business venture for a short period is considered as the variable working capital. In India, it is also used as temporary working capital and is used for changes in production and sales activities.
- Reserve Margin Working Capital
As the name suggests, this type of WC is reserved by the organizations for unforeseen expenses to sustain during a crisis.
- Seasonal Variable Working Capital
During the peak season of a business, a company requires more working capital to meet consumer demands. To fulfill the requirement the business owners opt for additional financial assistance which is known as seasonal working capital in India.
- Regular Working Capital
This type of WC is typically required by every organization under normal circumstances to ensure smooth business operations.
- Special Variable Working Capital
Special variable WC is the type of fund that is reserved by a business for its unique circumstances like the launch of new products, risk management, marketing campaigns, among others.
- Gross Working Capital
This type of fund is invested under a firm`s current assets. Its major components include cash, short-term investments, inventory, marketable securities, and accounts receivables.
- Net Working Capital
NWC is an essential type of working capital that represents the amount by which a firm`s current assets surpass its liabilities.
The concept of Working Capital is vast and is extremely vital for a business. Thus, the understanding of this concept requires deeper knowledge from the industry experts who have faced and resolved the challenges with their experience and in-depth understanding of the concept.
Take our Working Capital course that will clear all your doubts and provide solutions to your burning problems. To know more about this course and how it will benefit you, click here: https://www.badabusiness.com/psc?ref_code=ArticlesLeads