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 which are called fixed capital, 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.