Fundamentals of Financial Management, Third Edition

POINTS TO REMEMBER

1. Distinguish between gross working capital and net working capital.
   • While gross working capital means current assets, net working capital is equal to current assets minus current liabilities.

    

2. Distinguish between permanent and variable current assets. What is their significance?
   • The size of working capital maintained round the year is permanent working capital. Variable working capital arises during peak months/days to meet the additional demand.
   • The conservative finance manager finances permanent and also a part of the variable current assets with long-term capital in order to avoid risk. The aggressive manager, on the other hand, finances variable current assets and also a part of permanent current assets with short-term ...