What is a variable working capital?

Variable working capital is that portion of the total capital that is required over and above the fixed working capital. This working capital is required to meet the seasonal needs and some contingencies. The requirement of this type of working capital changes with the changes in the level of activity.

What is the permanent and variable working capital?

Permanent or fixed, working capital is the minimum level of current assets. It is permanent in the same away as the firm’s fixed assets. Fluctuating or Variable working capital is the extra working capital needed to support the changing production and sales activities of the firm.

What are the types of working capital?

Gross Working Capital: It refers to the sum invested in the current assets of the business like cash, account receivable, inventory, marketable securities and short-term securities. Net-Working Capital: It indicates the surplus-value of the current asset after deducting it from current liabilities.

What are the 4 components of working capital?

4 Main Components of Working Capital

• Trade Receivables. It is also known as account receivables and is represented as current liabilities in balance sheet.
• Inventory.
• Cash and Bank Balances.
• Trade Payables.

How do you calculate working capital variables?

How Is Variable Working Capital Determined? Note that NWC is calculated as the difference between a company’s current assets (cash, inventories of raw materials, finished goods, account receivables) and current liabilities (accounts payable, taxes).

What is mean by fixed working capital?

Permanent working capital is the minimum investment required in working capital irrespective of any fluctuation in business activity. Also known as fixed working capital, it is that level of net working capital below which it has never gone on any day in the financial year.

What is the difference between permanent and fixed working capital?

What is meant by working capital gross working capital Net working capital?

Gross Working Capital vs Net Working Capital Gross working capital is the sum total of all the current assets of a company, whereas net working capital is the difference between the current assets and the current liabilities of a company.