Question

Indian equity markets are going through a phase of boom. There is a huge growth potential for innovative technologies. This has resulted in lots of new ventures lying for a market share and old enterprises trying to keep up with the pace with which changes are taking place in the economy. This technological innovation has helped even smaller businesses to compete on a global scale. Identify and explain the three factors highlighted above which affect the working capital requirements of such enterprises​

Answer 1

Answer:

Explanation:

The factors which affect the working capital requirements of such enterprises

highlighted in the question above are:

1. Fluctuations in business cycle: During a boom period, the market flourishes and

thereby there is higher sale, higher production, higher stock and debtors. Thus, during

this period the need for working capital by a company increases. As against this, in a

period of depression, there is low demand, lesser production and sale, etc. Therefore,

the requirement for working capital is also less.

Line: 'Indian equity markets are going through a phase of boom'.

2. Growth Prospects: Higher growth and expansion of a company is associated with

higher production, more sales, more inputs, etc. Thus, companies with higher growth

prospects require a higher amount of working capital and vice versa.

Line: 'There is a huge growth potential for innovative technologies'.

3. Extent of competition: The higher the extent of competition in the market, the larger

is the amount of stock of goods that the firms must maintain to meet the demand, and

therefore the higher is the requirement of working capital.

Line:'This has resulted in lots of new ventures vying for a market share and old

enterprises trying to keep up with the pace with which changes are taking place in the economy.

Answer 2

Answer:

Yes,the above statement is correct.

Explanation:

Factors affecting the working capital requirements of such enterprises

The factors which affect the working capital requirements of such enterprises highlighted in the question above are:

1. Fluctuations in business cycle:

During a boom period, the market flourishes and therefore there is higher sale, higher production, higher stock and debtors. Thus, during this period the need for working capital by a company increases. As other than this, in a period of depression, there is low demand, lesser production and sale, etc. and so, the requirement for working capital is also less.

‘Indian equity markets are going through a phase of boom’.

2. Growth Prospects:

Higher growth and expansion of a company is associated with higher production .. Thus, companies with higher growth prospects require a higher amount of working capital and vice versa.

‘There is a huge growth potential for innovative technologies’.

3. Extent of competition:

The greater the extent of competition in the market, the larger is the amount of stock of goods that the firms must maintain to meet the demand, and therefore the higher is the requirement of working capital.

’This has resulted in lots of new ventures vying for a market share and old enterprises trying to keep up with the pace with which changes are taking place in the economy.