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CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management

Which of the following is correctly classified as permanent (core) working capital?

Permanent working capital is the minimum level of current assets a firm must always hold to keep operations going, regardless of season. Seasonal or special build-ups of stock, receivables or cash are temporary working capital, because they rise and fall with business activity.

  1. AThe extra stock a firm builds up before Diwali, which is sold off within the season
  2. BThe minimum level of current assets a firm must always hold to carry on operations, whatever the seasonCorrect
  3. CThe additional receivables created by a one-time special sale
  4. DThe cash raised through a short-term loan for a festival promotion

Explanation

Permanent (regular) working capital is the minimum amount of current assets that must be kept at all times to run the business uninterrupted. Seasonal stock build-ups, one-time receivables and short-term promotional funds fluctuate and fall under temporary (variable) working capital.

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