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When sales and purchases are made on cash basis only the fluctuation in inventory days between maximum and minimum requires to be financed by overdraft.
Can you please explain how is it so.
First, that is not a rule, but is sensible management of working capital.
The minimum will be permanent working capital and would sensibly therefore be financed by long-term borrowing.
The extra will be fluctuating working capital and would therefore sensibly be financed by short-term borrowing i.e. by overdraft.For more, please do watch my free lectures on the management of working capital.
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