Capital can be classified into two broad categories based on tenure viz. long term and short term capital,The long term capital of firms is committed to investment in fixed assets. It includes shareholders’ funds and long term loans. On the other hand, short term capital is applied for investment in current assets such as cash, marketable securities and short- term credits. Current assets are usually acquired very often in varying quantities depending on the demand structure for the firm’s product. Each time a decision to acquire current assets is taken, finance becomes inevitable.
However, it does not necessarily mean that cash has to be paid each time an order for recurrent production input is placed, rather it implies that just like in the case of fixed assets, every decision on current assets has financial implications
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