Explain with suitable examples the different factors which determines the requirement of working capital.
Answers
Main factors affecting the working capital are as follows:
(1) Nature of Business:
(2) Scale of Operations:
(3) Business Cycle:
(4) Seasonal Factors:
(5) Production Cycle:
(6) Credit Allowed:
(7) Credit Availed:
(8) Operating Efficiency:
factors affecting working capital requirement
1) Nature of business
Ex- Trading organisation -less working capital
Manufacturing organisation - more working capital
2) Scale of operation Ex- large scale organisation -more working capital
small scale organisation - less working capital
3) Business cycle
Ex - Boom period - more working capital
depression period - less working capital
4) seasonal factor
Ex- peak season - more working capital
lean season - less working capital
5) production cycle
Ex - longer production cycle - more working capital
shorter production cycle - less working capital
6) credit allowed
Ex- strict credit policy - less working capital
liberal credit policy - more working capital
7) inflation
Ex- during inflation - more working capital
during recession - less working capital.