12.2 The nature and purpose of working capital] Flashcards
1
Q
How is working capital calculated?
A
The difference between current assets and current liabilities. i.e. total cash tied up in current assets and liabilities.
2
Q
What is a current asset?
A
An asset expected to be realised, consumed or sold within the normal operating cycle of the business.
3
Q
What is permanent working capital?
A
The minimum level of working capital required to continue uninterrupted day-to-day business activities
4
Q
What is temporary working capital?
A
Additional finance requirements that arise out of events such as seasonal demand of the product or higher level of business activity.
