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Monday, 14 March 2011

Types or Kinds of Working Capital

The working capital in certain enterprise may be classified into the following kinds.

( 1 ) Initial working capital.
( 2 ) Regular working capital.
( 3 ) Fluctuating working capital.
( 4 ) Reserve Margin working capital.

1. Initial working capital:-
he capital, which required at the time of commencement of business is called initial working capital.
These are the promotions expenses incurred at the realist stage of formation of the enterprise which include the incorporation fees, Attorney's fees, office expenses and other preliminary expenses.

2. Regular working capital:-
This type of working capital remains always in the enterprise for the successful operation. It supplies the funds necessary to meet the current working expenses i.e. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses, selling the products and turning out finished products. It consist of accounts receivables and marketable securities etc. which keeps on revolving from cash to current assets and back.

3. Fluctuating working capital:-
This capital is needed to meet the seasonal requirement of the business.It is used o raise the volume of production by improvement or extension of machinery. It may be secured from any financial institution which can, of course, be met with short term capital. It is also called variable working capital.

4. Reserve Margin working capital:-
It represents the amount utilized at the time of contingencies. These unpleasant events may occur at any time in the running life of the business. Such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and unavoidable competition etc, In this case greater amount of capital is required for maintenance of the business.

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