Working capital | Definition | Types | Factors

Working Capital is a firm's investments in short – term assets – cash, short-term securities, accounts receivable and inventories. Gross Working Capital is the firm's total current assets. Net working capital is current Assets minus current liabilities. Working Capital Management, which encompasses all aspects of the administration of both current assets and current Liabilities.

Which more or less means: Capital is an investment company in short-term assets such as cash, securities (letter – securities), trade receivables and inventories. So this is call capital gross (gross capital). Being a net capital (net) is current assets minus debt smoothly. Capital management define broadly covers all aspects of the management of current assets both the smoothly.

Definition

Working capital is a  fund which is embedded in the current assets, therefore it can be cash, receivables, letters – securities, inventories and others. Gross  capital is a whole of assets/possessions smoothly embedded in the side of the debit balance.

The net working-capital is a whole treasure smoothly reduce debt smoothly. In other words, net capital is the difference between current assets minus current liabilities.

The term working-capital generally refers to a firm's investment in current asset over current liabilities. Net capital refers to the excess of current assets over current liabilities and can be thought of as the circulating capital of a business firm. Effective control of this circulating capital is one of the most important Junctions of financial management.

Type of Working Capital

Classify in several types, namely:

Capital is permanent

The working-capital of the company to be able to run the function between the capital consists and:
Primary funds. The amount of capital minimum that must exist. At the company to maintain the continuity of his efforts.

Variable

The amount varies according to the changing circumstances:

• A seasonal capital. Capital of which there are fluctuations cause by the changing of the seasons.


• Cyclical capital. Working funds totaling fickle cause by fluctuations conjuncture.


• Working funds emergency. The capital of which there are fickle because of an emergency that is not known in advance.

Factors:

The company's working cap. require to determine by 4 factors:

1. The Sales Volume. of the company need capital to support their operations in the event of an increase in sales.


2. Factors and Cycle. Fluctuation in sales cause by the seasons and the cycle will affect the need for capital.


3. Changes in technology. In case of development of technology, it will be associate with the production process and will bring impact on working capital needs.


4. Company policy. The policy apply by the company will also bring impact on capital needs.