CA Intermediate · Financial Management and Strategic Management · Introduction to Working Capital Management
Which of the following is correctly classified as permanent (fixed) working capital of a manufacturing firm?
Permanent working capital is the minimum level of current assets a firm must hold at all times to keep operations running. Seasonal stock build-up, one-off order receivables and temporary overdrafts are fluctuating or variable needs, so they are not permanent working capital.
- AExtra raw material stock built up before the festive season
- BThe minimum level of current assets that must be held at all times to carry on operationsCorrect
- CAdditional receivables created by a one-time bulk export order
- DTemporary bank overdraft taken to meet seasonal demand
Explanation
Permanent working capital is the minimum level of current assets needed continuously irrespective of seasonal variation. The other options describe seasonal, special or temporary needs, which form the variable component.
Did you get it right without looking?
One question tells you little. A timed set on Introduction to Working Capital Management shows your real accuracy, how long you take and where you lose marks.
More Introduction to Working Capital Management questions
- In working capital management, the 'hedging' (matching) approach to financing current assets requires that:
- Ranjit Traders has raw material storage period of 30 days, WIP period of 10 days, finished goods storage period of 20 days, and receivables …
- A company moves from a conservative to an aggressive working capital policy by cutting the ratio of current assets to sales and relying more…
- A firm's annual cost of goods sold is Rs. 7,20,000 and sales are Rs. 9,00,000. Average inventory is Rs. 1,20,000, average receivables are Rs…
- A firm follows an aggressive working capital financing policy. This means that it:
- A firm has current assets of ₹6,40,000 and current liabilities of ₹4,00,000. Which of the following correctly gives its net working capital …