Question

Explain how the following factor affects the working capital requirement of a business:

Production cycle

Answer 1

1. The time it takes to transform raw resources into completed goods is referred to as the manufacturing cycle.
2. Because money stays locked up in inventory for a longer amount of time, including raw materials, work-in-progress, and finished goods, a longer production cycle raises the working capital requirement.
3. On the other hand, because products are manufactured and sold more quickly, a shorter production cycle lowers the need for working capital.