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Question
Explain the following as a factor affecting the requirement of working capital:
Level of competition
Solution
The higher the extent of competition in the market, the larger is the amount of stock of goods that the firms must maintain to meet the demand; therefore, the higher is the requirement of working capital. Businesses occasionally have to lengthen the credit terms as well because of competition.
More competition ⇒ High working capital
Less competition ⇒ Low working capital
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