Final answer:
The amount of current assets required to meet a firm's long-term minimum needs is referred to as permanent working capital. It is essential for the continuity of business operations and differs from temporary working capital, which fluctuates with short-term needs.
Step-by-step explanation:
The amount of current assets required to meet a firm's long-term minimum needs is referred to as permanent working capital. This is the level of current assets that a firm must maintain at all times to carry on its business operations. Unlike temporary working capital, which addresses short-term fluctuations, permanent working capital is a stable category that supports a company's normal business cycle and accounts for the minimum level of inventory, receivables, and cash that the business requires.
As a reminder, capital refers to the assets a firm utilizes to generate income. However, not all assets are considered capital. For example, money is not considered capital because it cannot produce goods directly. Instead, money is a form of financial capital that can be used to acquire factors of production. The concept of a T-account helps illustrate this, as it separates a firm's assets from its liabilities, showing the financial position of the firm, where bank capital, or net worth, is the total assets minus total liabilities.