PERMANANT & TEMPORARY WORKING CAPITAL
Considering the time as the basis of the classification, there are two types working capital viz, ‘Permanent & Temporary’. Permanent working capital represents the assets required on continuing basis over the year, whereas the temporary working capital represent additional assets required at different times during the operation of the year. A firm will finance its seasonal 7 current fluctuation in the business purchase & more manufacturing expenses to be incurred, more funds will be locked debtors balances financial from short-term financing sources.
The permanent component current assets that are required throughout the year will generally be financing from long-term debt & equity. Tandon committee has referred to this type of working capital as ‘core current assets’. Core current assets are those required by the firm to ensure the continuity of operation that represents the minimum level of various items of current assets viz., stock of raw materials, stock of work-in-process ,stock of finished goods, debtor’s balance, cash& bank etc. this minimum level of current assets will be financed by long term-sources& short-term financing will finance any fluctuation over the minimum level of current assets. Some time he core current assets are also referred to as ‘hard core working capital’.
The management of working capital is concerned with maximizing the returns to shareholders within the accepted risk constraints carried by the participants in the company. Just as excessive long-term debts put a company at risk, so an excessive quality of short-term also increases the risk of the company by straining its solvency. the suppliers of permanent working capital look for long-term
return of funds invested whereas the suppliers of temporary capital will look for immediate & the cost of such financing will also be costlier the cost of permanent funds used for working capital.
Considering the time as the basis of the classification, there are two types working capital viz, ‘Permanent & Temporary’. Permanent working capital represents the assets required on continuing basis over the year, whereas the temporary working capital represent additional assets required at different times during the operation of the year. A firm will finance its seasonal 7 current fluctuation in the business purchase & more manufacturing expenses to be incurred, more funds will be locked debtors balances financial from short-term financing sources.
The permanent component current assets that are required throughout the year will generally be financing from long-term debt & equity. Tandon committee has referred to this type of working capital as ‘core current assets’. Core current assets are those required by the firm to ensure the continuity of operation that represents the minimum level of various items of current assets viz., stock of raw materials, stock of work-in-process ,stock of finished goods, debtor’s balance, cash& bank etc. this minimum level of current assets will be financed by long term-sources& short-term financing will finance any fluctuation over the minimum level of current assets. Some time he core current assets are also referred to as ‘hard core working capital’.
The management of working capital is concerned with maximizing the returns to shareholders within the accepted risk constraints carried by the participants in the company. Just as excessive long-term debts put a company at risk, so an excessive quality of short-term also increases the risk of the company by straining its solvency. the suppliers of permanent working capital look for long-term
return of funds invested whereas the suppliers of temporary capital will look for immediate & the cost of such financing will also be costlier the cost of permanent funds used for working capital.