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    Working Capital Requirements

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    Ashuwajit
    The document outlines 12 factors that determine a business's working capital requirements: 1) Nature of business, 2) Size of business, 3) Production policy, 4) Length of production cycle, 5) Seasonal variations, 6) Working capital cycle, 7) Rate of stock turnover, 8) Credit policy, 9) Business cycle, 10) Rate of growth, 11) Earning capacity and dividend policy, 12) Price level changes. Working capital requirements are directly impacted by these operational, economic, and strategic factors.

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    Working Capital Requirements

    Uploaded by

    Ashuwajit
    77 views2 pages
    The document outlines 12 factors that determine a business's working capital requirements: 1) Nature of business, 2) Size of business, 3) Production policy, 4) Length of production cycle, 5) Seasonal variations, 6) Working capital cycle, 7) Rate of stock turnover, 8) Credit policy, 9) Business cycle, 10) Rate of growth, 11) Earning capacity and dividend policy, 12) Price level changes. Working capital requirements are directly impacted by these operational, economic, and strategic factors.

    Original Description:

    Factors Determining the Working Requirements

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    The document outlines 12 factors that determine a business's working capital requirements: 1) Nature of business, 2) Size of business, 3) Production policy, 4) Length of production cycle, 5) Seasonal variations, 6) Working capital cycle, 7) Rate of stock turnover, 8) Credit policy, 9) Business cycle, 10) Rate of growth, 11) Earning capacity and dividend policy, 12) Price level changes. Working capital requirements are directly impacted by these operational, economic, and strategic factors.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    77 views2 pages

    Working Capital Requirements

    Uploaded by

    Ashuwajit
    The document outlines 12 factors that determine a business's working capital requirements: 1) Nature of business, 2) Size of business, 3) Production policy, 4) Length of production cycle, 5) Seasonal variations, 6) Working capital cycle, 7) Rate of stock turnover, 8) Credit policy, 9) Business cycle, 10) Rate of growth, 11) Earning capacity and dividend policy, 12) Price level changes. Working capital requirements are directly impacted by these operational, economic, and strategic factors.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

    1. NATURE OF BUSINESS: The requirements of working is very limited in


    public utility undertakings such as electricity, water supply and railways because they offer
    cash sale only and supply services not products, and no funds are tied up in inventories and
    receivables. On the other hand the trading and financial firms requires less investment in
    fixed assets but have to invest large amt. of working capital along with fixed investments.

    2. SIZE OF THE BUSINESS: Greater the size of the business, greater is


    the requirement of working capital.

    3. PRODUCTION POLICY: If the policy is to keep production steady by


    accumulating inventories it will require higher working capital.

    4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing


    time the raw material and other supplies have to be carried for a longer in the process with
    progressive increment of labor and service costs before the final product is obtained. So
    working capital is directly proportional to the length of the manufacturing process.

    5. SEASONALS VARIATIONS: Generally, during the busy season, a firm


    requires larger working capital than in slack season.

    6. WORKING CAPITAL CYCLE: The speed with which the working


    cycle completes one cycle determines the requirements of working capital. Longer the cycle
    larger is the requirement of working capital.

    DEBTORS

    CASH FINISHED GOODS

    RAW MATERIAL WORK IN PROGRESS


    7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the
    question of working capital and the velocity or speed with which the sales are affected. A firm
    having a high rate of stock turnover wuill needs lower amt. of working capital as compared to
    a firm having a low rate of turnover.

    8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its
    product / services on cash requires lesser amt. of working capital and vice-versa.

    9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for
    larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of
    business, etc. On the contrary in time of depression, the business contracts, sales decline,
    difficulties are faced in collection from debtor and the firm may have a large amt. of working
    capital.

    10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large
    amt. of working capital.

    11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
    capacity than other due to quality of their products, monopoly conditions, etc. Such firms may
    generate cash profits from operations and contribute to their working capital. The dividend
    policy also affects the requirement of working capital. A firm maintaining a steady high rate of
    cash dividend irrespective of its profits needs working capital than the firm that retains larger
    part of its profits and does not pay so high rate of cash dividend.

    12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
    requirements. Generally rise in prices leads to increase in working capital.

    Others FACTORS: These are:

     Operating efficiency.

     Management ability.

     Irregularities of supply.

     Import policy.

     Asset structure.

     Importance of labor.

     Banking facilities, etc.

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