How to Calculate Working Capital & Different Types of Working Capital

When you start your business or enterprise the first that you need is working capital as its help you in day to day transaction. Here we try to show you different types of working capital with complete examples and how we can classify and differentiate in a number of ways.  For your understanding we try to give examples of working capital with each different type, some of the important classifications are as follows,

Types of Working Capital

Gross Working Capital

Gross Capital = Total current assets. In  currents assets the major items are like stock of raw material, work in progress, finished goods, spares and consumable stores, sundry debtors, bill receivable , cash and bank balance , prepaid expenses, accrued income advance payment short term investment etc.

Net Working Capital

Net Working Capital is the Excess of current asset over current liabilities. Thus Net working  capital = Current Assets – Current Liabilities In Other words the value of the gross working capital is reduced by current liabilities such as sundry creditors, bills payable, bank overdraft, income received in advance, outstanding liabilities, proposed  dividend provision for tax etc.

Positive Working Capital

When the current assets are more than the currents liabilities such as situation is known as positive working capital.

E.g. If the currents assets are Rs 500000 and the current liabilities are Rs. 300000, the working capital is Rs 200000

Negative working Capital

When the Current Liabilities are more than the currents assets such a situation is known as negative working capital.

E.g. If the currents assets are Rs. 500000 and the currents liabilities are Rs. 650000, the working capital is negative to the extent of Rs. 1, 50,000. A negative working Capital indicates the lack of liquidity and solvency position which is a danger signal for the business.

Zero Working Capital

When the investment in currents assets is directly equal the current liabilities in such a situation it shows zero working capital.

E.g. If the current assets are Rs. 5,00,000 and also the current liabilities are Rs. 5,00,000; then it is a situation of zero working capital. There are few more types will try to explain in different article.

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