CS Executive · Corporate Accounting and Financial Management · Working Capital Management
Which of the following is a feature of permanent (fixed) working capital as distinct from temporary (variable) working capital?
Permanent working capital is the minimum level of current assets a firm must maintain continuously to run operations. Seasonal or fluctuating needs form temporary working capital, which is why the seasonal option is not correct.
- AIt is the minimum level of current assets needed at all times to carry on businessCorrect
- BIt fluctuates with seasonal demand
- CIt is financed only through bank overdraft
- DIt arises only when sales fall
Explanation
Permanent working capital is the minimum investment in current assets that a firm always needs, regardless of season. Seasonal fluctuation relates to temporary working capital, so the second option is wrong.
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