Permanent Working Capital

Permanent Working Capital

Permanent working capital is the minimum level of cash that a business needs to maintain its operations. This cash is used to pay for things like inventory, salaries, and other day-to-day expenses.

Businesses typically have two types of working capital: short-term and long-term. Short-term working capital is the cash a business needs to cover its expenses for a period of time (usually one year or less). Long-term working capital is the cash a business needs to cover its expenses for a longer period of time (usually more than one year).

The permanent working capital definition can be applied to both short-term and long-term working capital. For businesses with short-term working capital, the permanent working capital definition means the minimum amount of cash that must be kept on hand to cover expenses. For businesses with long-term working capital, the permanent working capital definition means the minimum amount of cash that must be kept on hand to cover expenses over the long term.

Permanent working capital is important because it ensures that a business has enough cash to meet its obligations. Without enough Working Capital, a business may have to take out loans or sell assets to raise the necessary funds. This can put the business at risk and make it difficult to continue operating.

When determining how much permanent Working Capital is needed, businesses should consider all sources of revenue and all types of expenses.