A permanent funding requirement is a constant investment in operating assets resulting from constant sales over time. A seasonal funding requirement is an investment in operating assets that varies over time as a result of cyclic sales. Let’s use an example: FIN504 Corporation holds, on average, $50,000 in cash and marketable securities, $1,500,000 in inventory, and $500,000 in accounts receivable. FIN504’s business is very stable over time, so its operating assets can be viewed as permanent. In addition, FIN504’s accounts payable of $400,000 are stable over time. Thus, FIN504 has a permanent investment in operating assets of $1,650,000 ($50,000 + $1,500,000 + $500,000 - $400,000). That amount would also equal its permanent funding requirement. How would you go about determining seasonal funding requirements?
A permanent funding requirement is a constant investment in operating assets resulting from constant sales over time.
A seasonal funding requirement is an investment in operating assets that varies over time as a result of cyclic sales.
Let’s use an example:
FIN504 Corporation holds, on average, $50,000 in cash and marketable securities, $1,500,000 in inventory, and $500,000 in accounts receivable. FIN504’s business is very stable over time, so its operating assets can be viewed as permanent. In addition, FIN504’s accounts payable of $400,000 are stable over time. Thus, FIN504 has a permanent investment in operating assets of $1,650,000 ($50,000 + $1,500,000 + $500,000 - $400,000). That amount would also equal its permanent funding requirement.
How would you go about determining seasonal funding requirements?
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