Fixed Working Capital

Permanent working capital is also known as fixed working capital.

Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capital.

Permanent working capital means the part of working capital that is permanently locked up in current assets to carry business smoothly and effortlessly. Thus, it’s also known as fixed working capital.

The minimum amount of current assets which is required to conduct a business smoothly during the year is called permanent working capital. The amount of permanent working capital depends upon the nature, growth, and size of the business.

Fixed working capital can further be divided into two categories:

• Regular working capital: It is the minimum amount of capital required by a business to fund its day-to-day operations of a business. E.g. payment of wages, salary, overhead expenses, etc.
• Reserve margin working capital: Apart from day-to-day activities, additional working capital may also be required for contingencies that may arise at any time like strike, business depression, etc.

Whereas, on the other hand, variable working capital, also known as temporary working capital refers to the level of working capital that is temporary and keeps fluctuating.