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Dear Sir,
Hi again! I have a doubt regarding working capital..
Working capital consists two elements that are permanent assets and fluctuating assets.
Permanent are core assets which are meant to stay for day to day operations while fluctuating assets, arises may be because of seasonal variations..
So can you tell me, is my knowledge right? Permanent assets do not stay for more then 1 year right? (This will make them part of non-current assets)
And in ideal situation Fluctuating assets should be financed by short term finance…
What about Permanent assets? mixture of medium and short?
Thanks
Permanent working capital is the average level needed in the long-term – not just for one year.
It does not make them non-current assets – things like Receivables will keep changing from day to day as we send out new invoices and other debtors pay us. It is just the average level that stays the same.There is no rule as to how the working capital should be funded – it depends very much on the attitude to risk (as is explained in the Lecture Notes).
However, the normal, sensible suggestion is to fund permanent/long-term working capital from long-term finance, and to fund temporary/fluctuating working capital from short-term finance.
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