Factors Determining Working Capital Requirement-Working Capital Video Lecture | Accountancy and Financial Management - B Com

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today we are going to explain factors
determining working capital requirement
factors determining working capital
requirement are nature of business
seasonality of Industry and production
policy competition production cycle time
credit policy growth and expansion raw
material short supply net cash profit
taxes dividend policy price levels
factors influencing working capital
management nature of the industry or
business the management of working
capital is completely different from
industry to industry a simple comparison
of the service industry and
manufacturing industry can clarify the
point in a service industry
there is no inventory and therefore one
big component of working capital is
already avoided so the nature of the
industry is a factor in determining the
working capital requirement seasonality
of industry and production policy
business is based on seasons like
manufacturing of ACS whose demand Peaks
in summer and di pees in winter the
requirement of working capital will be
more in summer compared to winter if
they are produced in the fashion of
their demand the policy of producing
throughout the year can smoothen the
fluctuation of working capital
requirement
petition if the industry is competitive
quick response to customer needs is
compulsory and therefore a higher level
of inventory is maintained liberal
credit terms are also mandatory with
good service to survive in the market so
higher the competition higher would be
the requirement of working capital
production cycle time the production
cycle time refers to the time required
for converting the raw materials into
finished goods higher this time higher
would be the time of blocking funds in
the working capital credit policy
liberal credit policy demands a higher
level of working capital and tight
credit policy reduces it growth and
expansion some industries are static and
others are growing obviously growing
industry grows the requirement of
working capital also as compared to
static industry
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you
dividend policy dividend policy
determines the level of retained profits
with the business and retained profits
are also used for working capital this
is how dividend policy affects the need
for working capital price levels the
price levels of inventory and other
expenses such as labor rates etc
increase the working capital requirement
if the company also is able to increase
the price of their finished goods it
reduces this impact
other factors that determine or impact
the working capital in some or the other
way are as follows cash requirements
volume of sales terms of purchase and
sales
inventory turnover business turnover
current assets requirements profit
planning and control repayment ability
cash reserves change in technology
attitude towards risk
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