Question

What is the difference between permanent and temporary working capital?

Answer 1

Permanent working capital is the minimum investment required in working capital irrespective of any fluctuation in business activity. Also known as fixed working capital, it is that level of net working capital below which it has never gone on any day in the financial year. Net working capital means current assets less current liabilities. This term is important to be calculated for decisions relating financing mix of working capital and save the interest cost of the firm...........

While

Temporary working capital (TWC) is the temporary fluctuation of net working capital over and above the permanent working capital. It is the additional working capital requirement arising out of seasonal demand of the product or any special event which otherwise are not predictable. In other words, it is the difference between net working capital and the permanent working capital.........

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