Gerstenberg has conveniently classified the working capital into
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(a) Regular or Permanent Working Capital and
(b) Temporary or Variable Working Capital.
1. Permanent Working Capital:
It is the minimum working capital required for producing predetermined production
Permanent working is the minimum investment kept in the form of inventory of raw materials, work in process, finished goods, stores & spare, and book debts to facilitate uninterrupted operation of a firm.
Though this investment is stable in the short run, it certainly varies in the long run depending upon the expansion programmers undertaken by a firm. It may increase or decrease over a period of time.
The minimum level of current assets maintained in a firm is usually known as permanent or regular working capital.
2. Temporary Working Capital:
It is the additional current assets required for temporary period, and it is above permanent WC
A firm is required to maintain an additional current asset temporarily over and above the permanent working capital to satisfy cyclical demands. Any additional working capital apart from permanent working capital required to support the changing production and sales activities is referred to as temporary or variable working capital.
In Other workds, an amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital.
At times, additional working capital is required to meet the unforeseen events like floods, strikes, seasonal production and price hike tendencies contingencies.
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there have most essential Explain Permanent and Temporary Working Capital with graphical representation. thanks for aware us.
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i have noted it down on my notes for M.com notes in FMC. thanks for the diagram.
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