Factors which help in determining the working capital requirements of a company are
- Nature
of Business influences
the working capital required. Eg:
A trading firm requires
a smaller
working capital as
compared to a
manufacturing
firm.
- (ii) An organisation operating on
a higher the scale of operation requires a
large
amount of working capital
as compared
to the organization which operates on
a lower scale.
- Different phases of the business cycle affect the
requirement of working
capital by a firm.
In case of the boom, larger
amount of working capital is required as compared to
depression.
- (iv) Seasonal
factors affect
the level of activity and
working capital requirement of business.
In peak
season, larger amount of
working
capital is
required as compared
to lean season.
- (v)
The duration and the
length of the production cycle
affect the
amount of funds
required for material and expenses and consequently affect the working capital requirement of a firm. Firms
with longer processing cycles lead to
higher
working capital requirement
of a business.
- (vi) Credit Allowed
affects
the amount
of debtors and consequently the
working
capital requirement
of a firm.
- (vii) To the
extent the
firm avails
credit on
purchases,
the working capital requirement is
reduced.
- (viii) Operating
Efficiency of a
firm may reduce
the level of
raw materials,
finished
goods and debtors resulting in
lower requirement
of working
capital.
- (ix) Difficulty in
availability of raw
material and
larger
lead time will
make the
firm store a larger quantity of
material
and larger
shall be the
amount of
working capital required.
- (or
any other correct factor)
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