Permanent working capital
Individual inventory items and receivables turn over, but a business may always need a minimum aggregate amount. That continuing requirement is permanent working capital. Its level can grow as the business expands, so 'permanent' does not mean fixed forever. Under a matching funding approach, long-term finance supports this core need, while short-term finance covers temporary increases. Estimate the requirement from the operating cycle, activity levels and policies rather than classifying it solely by the legal maturity of each individual current asset.
Worked example
A wholesaler's current assets range from $250,000 in its quietest month to $400,000 at the seasonal peak. If $250,000 is the continuing minimum required, it is the permanent component and the additional $150,000 is seasonal.
Common mistake
Assuming that every current asset represents a temporary funding need simply because each item is expected to turn into cash soon.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |