BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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varies with seasonal needs.
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includes fixed assets.
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is the amount of current assets required to meet a firm’s long-term minimum needs.
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includes accounts payable.
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Detailed explanation-1: -Permanent working capital refers to the minimum amount of working capital i.e. the amount of current assets over current liabilities which is needed to conduct a business even during the dullest period.
Detailed explanation-2: -However, there is always a minimum level of current assets which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital and is permanent in the same way as the firm’s fixed asset.
Detailed explanation-3: -Capital that is needed to make liability payments even before the enterprise is able to change invoices or assets into cash is called the permanent working capital loan. This type of loan is needed by the business for a long and sometimes very long period of time. It also depends on the operating cycle.
Detailed explanation-4: -"Permanent” working capital is the normal or “standard” amount of investment in current assets less current liabilities. It assumes a steady, unchanging level of sales and production activity and no changes in terms of trade.
Detailed explanation-5: -The least amount of cash you will need to cover your expenses is your minimum working capital requirement. Your company needs to determine an acceptable level of working capital to match its needs. Once you know this required amount, make sure you have it available before factoring in sales numbers.