Working capital indicates the funds required to pay for the daily operations of a business, including both existing and unforeseen expenses that they might incur. It is usually calculated based on individual business cycles (or at an annual basis).
However, there are certain aspects of it that can be essential components of an organisation for more than one business cycle.
Businesses should also maintain a high working capital ratio at all times to ensure they have adequate funds to pay for all its short term liabilities.
Experts categorise working capital in multiple groups, including permanent, variable, regular, reserve, and seasonal working capital.
Each indicates a different source or variant of money, used in an organisation to bridge certain monetary shortcoming that might affect its everyday operations.
Organisations should also identify the sources of working capital so that they can avail financial assistance whenever required.
Usually, these types of credits are offered by financial institutions in the form of business loans and working capital loans.