Advertisements
Advertisements
Question
Justify the following statement.
The nature of business affects the working capital requirement.
Solution
There are no precise standards to measure working capital adequacy. Management has to determine the size of working capital in light of certain aspects of the business firm and the economic environment within which the firm operates. Firms engaged in manufacturing essential products of daily consumption would need relatively less working capital as there would be constant and sufficient cash inflow in the firm to take care of liabilities. Likewise, public utility concerns have to maintain a small working capital because of a continuous flow of cash from their customers. On the contrary, if the business is dealing in Luxurious products, it requires a huge amount of working capital as the sale of Luxurious items is not frequent. Trading/merchandising firms that are concerned with the distribution of goods have to carry big inventories of goods to meet customers' demands and have to extend credit facilities to attract customers. Hence, they need a large amount of working capital.
APPEARS IN
RELATED QUESTIONS
Write a word or a term or a phrase which can substitute the following statement.
Capital needed to acquire fixed assets which are used for longer period of time.
Write a word or a term or a phrase which can substitute the following statement.
The sum of current assets.
Write a word or a term or a phrase which can substitute the following statement.
The process of converting raw material into finished goods.
State whether the following statement is true or false.
The business will require huge funds if assets are acquired on a lease basis.
State whether the following statement is true or false.
The business dealing in luxurious products will require huge amount of working capital.
State whether the following statement is true or false.
A firm with large scale operations will require more working capital.
Liberal credit policy creates a problem of bad debts.
Initial planning of capital requirement is made by______.
Answer in one sentence.
What is fixed capital?
Explain the following term/concept.
Working capital
Justify the following statement.
There are various factors affecting the requirement of fixed capital.
______ capital is used to carry out day-to-day business activities.
Distinguish between the following.
Fixed Capital and Working Capital
Liberal credit policy creates a problem of bad debts.
Explain the following term/concept:
Fixed capital
Liberal credit policy creates a problem of bad debts.
Distinguish between the following.
Fixed Capital and Working Capital.
