Permanent Working Capital
Short definition
Permanent working capital is the structural OWC floor still tied at the seasonal trough. Funding it continuously with short loans is a maturity mismatch.
Detailed explanation
The year’s lowest OWC (or a seasonally adjusted floor) is the permanent need. Above that is temporary. Growth lifts the floor; a line that looked seasonal becomes structural.
Theory funds the floor with term debt or equity. In practice many firms rest the revolver on the floor; at renewal both rate and covenants tighten.
Why it matters for the CFO
This is a capital-structure choice: floor on term/equity, peaks on the RCF. The reverse is annual refinancing risk.
How to read it
Floor / average OWC shows seasonality. A ratio near 1 means the model has no season — the whole need is permanent.
Related calculators
Güven Sayılgan’s writing on this topic
The Working-Capital Illusion: Growing Sales While Going Broke
Rising sales are often treated as a success indicator; in financial management, however, turnover and cash are not the same thing, and growth that cannot be fin
4 min read
Read → FinansFinancial Flexibility and Financing Constraints: An Assessment from the Literature to the Turkish Context
Financing constraints and financial flexibility are complementary frameworks. Drawing on the literature, this note offers practice-oriented reflections for fina
4 min read
Read → FinansHow Should Firms Be Financed in a High-Interest Environment? 15 Core Principles
In a high-interest environment, financing decisions must be made with greater care. Fifteen principles for assessing cost, maturity, currency, and cash-flow eff
3 min read
Read →Read these first
Related terms
What to learn next
Definitions are educational. They are not investment, credit or tax advice.