Question

Explain the following factor affecting the working capital requirement of a business: 

Availability of raw material

Answer 1

The availability of raw materials affects a company's working capital requirements. Having access to reliable raw materials at reasonable costs lowers the need for unnecessary inventories and wasted working capital. If raw materials are scarce, price unstable, or acquired from distant suppliers, it may be necessary to increase inventories and working capital to ensure continuous production and reduce supply chain risks.