permanent funding Flashcards
the amount of money a
business needs to keep on hand to cover its day-to-day operations.
This includes the cost of goods sold, operating expenses, and any
other ongoing expenses. The permanent funding requirement can be
calculated by adding up all of the company’s fixed assets and current
liabilities. The permanent funding requirement is also known as the
base level of funding.
permanent funding
key characteristics of permanent funding
constant
essential
long term
stable
Permanent funding is
required to cover ongoing
operating expenses and fixed
assets.
constant needs
These funds are needed for
the entire life of the business
and are not expected to
fluctuate significantly.
long term
Permanent funding
requirements remain
relatively consistent over time
stable
Without permanent funding,
the business could not
function and meet its basic
needs.
essential
example of permanent funding
working capital needs
growth investments
cash flow management
the additional financing needed
to meet temporary peaks in demand. These peaks are often driven by
seasonal factors like weather or holidays. This is a short-term financing
need that often arises during specific months of the year.
seasonal funding requirement
key characteristics of seasonal funding
fluctuating demand
predictable pattern
temporary needa
necessary component of a
business’s long-term financial strategy.
It represents the consistent financial resources required
for ongoing operations.
permanent funding
is crucial for businesses experiencing
fluctuations in demand or production.
It addresses the temporary need for extra financial
resources during peak seasons.
seasonal funding
prioritizes minimizing funding costs. This is achieved by borrowing only the
exact amount required for short periods.
1
Minimizes Funding Costs
Low interest expense on short-term loans.
2
Short-Term Loans
Borrow only when needed for short durations.
3
Lower Cash Reserves
Minimizes idle cash balances.
This strategy assumes accurate sales forecasting and efficient inventory management. It requires a high degree of
confidence in predicting demand and managing operations.
aggressive seasonal funding requirement
characteristics of aggressive seasonal funding requiremnt
high leverage
minimal permanent funding
risk of financial distress
potential for higher returns
This strategy relies heavily on short-term financing to
meet seasonal demands.
minimal permanent funding
Businesses take on more debt to finance seasonal
operations.
high leverage
