CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Which of the following is a permanent (core) component of working capital rather than a temporary one?
Permanent working capital is the minimum level of current assets, such as basic stock and debtors, that a business must hold continuously whatever the season. Seasonal peaks and one-off orders create only temporary or fluctuating working capital.
- AExtra stock built up for a festival-season sales peak
- BThe minimum level of stock and debtors needed even in the slackest periodCorrect
- CSeasonal borrowing to finance a bumper harvest purchase
- DAdditional receivables from a one-time bulk order
Explanation
Permanent working capital is the minimum level of current assets needed to carry on operations at all times. The other options are fluctuating items arising from seasonal or special demand, so they are temporary working capital.
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