Define Working Capital with differentiate between variable working capital and permanent working capital

Working capital is a financial metric represents operating liquidity available to a business, organization or other entity, including governmental entity.

Net working capital is calculated as current assets minus current liabilities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses.

 

Difference between variable working capital and permanent working capital.

Working capital is a part of capital investment is used for running the business such like money which is used to buy stock, pay expenses and finance credit.

Considering time as the basic of classification there are two types of working capital: 1) Permanent working capital; 2) Variable working capital;

The difference between variable working capital and permanent working capital is as follows:

1) Permanent working capital is referred to finance to stock of finished goods, debtors balances etc. Variable working capital is used to carry out day to day operations.

2) Permanent working capital consists of stock of raw materials, stock of work-in-process, stock of finished goods, debtors balance, etc. Variable working capital consists of cash, marketable securities, account receivable, stock etc.

3) Permanent working capital includes long term financial decisions. Variable working capital includes short term financing decisions.

4) Permanent working is mainly required for operational activities. Variable working capital is required for trading activities.