Q. 235.0( 1 Vote )

State 3 reasons for calling raw material and money as working capital.

Answer :

Physical capital is the inputs which are used at various stages of productions. There are two types of physical capital: fixed capital and working capital. Fixed capital includes those assets which can be used over many years in the process of production like machines in factory, building, tools etc.


Working capital includes raw materials which will be converted into finished goods and money in hand which will be required to purchase raw material or any other item during production. Working capital is the capital which gets exhausted after its use and changes its shape like raw material in jaggery production is sugarcane. When we crush the sugarcane, it gets exhausted and cannot be used as sugarcane further and changes its shape by becoming jaggery. Money in hand gets exhausted when we buy sugarcanes or any other inputs. Therefore, they are known as working capital.


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