Question

What are the important determinants of working capital requirement?

Options

• Type of Business

• Scale of Operations

• Fluctuations in Business Cycle

• All of the above

Answer 1

All of the above

Explanation -

1. Type of Business: The type of a company's business determines its working capital requirements. Working capital is not required by a company that provides services or trades. This is due to the fact that such businesses have a short operational cycle and no processing. The raw materials and outputs are identical in this case, and the sale is completed promptly.
2. Operational Scale:  Another element that influences the amount of working capital required is the size of the company's operations deals. If a company operates on a large scale, the necessity for working capital rises. Because such businesses would need to keep a large supply of inventory debtors and creditors If, on the other hand, the scale. The demand of the operation is minor. There will be less working capital.
3. Changes in the Business Cycle: The working capital requirements of a company change as the business cycle progresses. During a boom time, the market "flourishes," resulting in increased sales, production, stock, and debtors. As a result, the need for working capital increases during this time. In contrast, during a depression, demand is low, output and sales are low, and so on. As a result, the need for working capital decreases.