Explain any four factors affecting working capital requirements of a company.
Explain any four factors affecting working capital requirements of a company.
The four factors affecting working capital requirements of a company are as follows :
(i) Scale of operations: Working capital and scale of operations are directly related to each other. Small-scale operations will require less working capital while large-scale operations will require more working capital.
(ii) Business cycles: Working capital and business cycles are also directly related to each other. During an economic boom, more working capital is demanded and higher sales are generated. However, an economic contraction demands less working capital as lower sales are generated.
(iii) Production cycle: If the production cycle is long, then there will be more working capital held in raw material, semi-finished goods and inventories. If the production cycle is short then there will be lesser working capital held.
(iv) Availability of raw material: If raw material is easily available throughout the year that meets the demand of the product continuously then less working capital is required as there are no inventories generated.
The four factors affecting working capital requirements of a company are as follows :
(i) Scale of operations: Working capital and scale of operations are directly related to each other. Small-scale operations will require less working capital while large-scale operations will require more working capital.
(ii) Business cycles: Working capital and business cycles are also directly related to each other. During an economic boom, more working capital is demanded and higher sales are generated. However, an economic contraction demands less working capital as lower sales are generated.
(iii) Production cycle: If the production cycle is long, then there will be more working capital held in raw material, semi-finished goods and inventories. If the production cycle is short then there will be lesser working capital held.
(iv) Availability of raw material: If raw material is easily available throughout the year that meets the demand of the product continuously then less working capital is required as there are no inventories generated.
