CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Which of the following is a permanent (core) component of working capital?
Permanent working capital is the minimum amount of current assets a firm must always hold to carry on operations. Seasonal stock build-ups, higher seasonal receivables and temporary cash for a specific payment are variable working capital.
- AExtra stock built up for a festival season
- BThe minimum level of current assets needed to carry on operations throughout the yearCorrect
- CSeasonal increase in receivables
- DTemporary cash held for an advance tax payment
Explanation
Permanent or fixed working capital is the minimum level of current assets required at all times to run the business. Seasonal, festival-related or temporary needs are variable working capital.
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