Replacing short-term debt with equity. Permanent working capital financed with long-term liabilities. Short-term assets financed with equity. In deciding the appropriate level of current assets for the firm, management is confronted with a trade-off between profitability and risk. 6. varies inversely with profitability.
Spontaneous financing includes accounts receivable.
Permanent working capital varies with seasonal needs. Net working capital refers to total assets minus fixed assets. Used by permission. All rights reserved.