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Question
Explain the following as factors affecting the requirements of working capital:
Seasonal factors
Solution
Working capital refers to current assets which help in day-to-day business operations.
Seasonal factors: A company selling seasonal products will require high working capital to meet higher sale, higher production, higher stock and more debtors. While a company selling goods throughout the season will require constant working capital which is low working capital spread throughout the season.
Peak season ⇒ High working capital
Lean season ⇒ Low working capital
RELATED QUESTIONS
Explain the following as factors affecting the requirements of fixed capital:
Technology upgradation
Explain the following as factors affecting the requirements of fixed capital:
Financing alternatives
Explain the following as factors affecting the requirements of working capital:
Scale of operations
Amrit is running a ‘transport service’ and earning good returns by providing this service to industries. Giving reason, state whether the working capital requirement of the firm will be ‘less’ or ‘more’.
What is working capital? Discuss five important determinants of working capital requirement?
Answer the question.
Briefly explain any four types of working capital required by a business concern.
What is meant by capital gearing ratio?
Companies with a higher growth potential are likely to
Higher working capital usually results in :
Higher dividend per share is associated with
A fixed asset should be financed through
Current assets of a business firm should be financed through
What are the important determinants of working capital requirement?
______ involve identifying various sources of funds and deciding the best combination for raising the funds.
______ decision involves the decision regarding the distribution of profit or surplus of the company.
Assertion (A): A commercial bill is a bill of exchange used to finance the working capital requirements of business firms.
Reason (R): Commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
Read the following text and answer the following question on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
"Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)." The proportion of debt in the overall capital is called ______.
