Question

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

Seasonal factors

Answer 1

1. A business's working capital requirements are greatly affected by seasonal influences. The demand for goods and services usually rises during peak seasons, necessitating increased labor, raw materials, and inventory levels for a business. As a result, more working capital is needed to effectively fulfill demand and keep things running smoothly.
2. On the other hand, demand declines during off-peak seasons, which lowers the need for inventory and other operating costs thus reducing the working capital requirement. For example, in order to store and create more ice cream in the summer, an ice cream company would need more working capital than in the winter.