Question

What is meant by working capital? How is it different from fixed capital?

Answer 1

Production requires a variety of raw materials such as the yarn used by the weaver and the clay used by the potter. Also, some money is always required during production to make payments and buy other necessary items. Raw materials and money in hand are thus called working capital.
Tools, machines, buildings etc. are called fixed capital and these can be used in production over many years. On the other hand, raw materials and money in hand, which are called working capital, are used up in production.