3 Types of Working Capital

Do you want to make sure that your company generates enough cash to cover its day-to-day expenses and financial obligations? It’s important to note that unless you can develop a sound financial strategy, it may be challenging for you to achieve this goal. Fortunately, with the help of capital management financial advisors, you’ll be able to ensure maximum efficiency in your company’s cash flow.

What Exactly Is Capital Management?

Capital management refers to the business strategy specifically designed to make sure a business is operating efficiently. This involves using the company’s current assets and liabilities to produce the most favorable effect on the company as a whole. Capital management’s main purpose is to enable the business to meet its short-term debt obligations and operating costs by achieving and maintaining sufficient cash flow.

What Are The 3 Types of Working Capital?

Gross Working Capital

Gross working capital simply refers to the total sum of your business’ current assets. These assets may be converted to cash within a year – accounts receivable, cash, inventory, marketable securities, and short-term investments.

Net Working Capital

This refers to the financial difference between your company’s existing assets and liabilities.

Permanent Working Capital

Permanent working capital is all about the minimum amount of your company’s financial resources that should always remain invested. In other words, you won’t be able to access a certain amount of stock, cash, and accounts receivable. While your business uses these permanent assets to carry out its daily operations, know that these are typically drawn from its long-term sources.

Variable Working Capital

This working capital is often referred to as flexible funds. These are usually drawn from sources that are short-term to handle the company’s increasing and decrease financial needs.

Looking for Capital Management Financial Advisors?

With capital management, your business will be able to achieve long-term success. The team of experts at 1879 Advisors is excited to help you balance current assets with your company’s liquidity position. Request an appointment today.

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