B Com Exam > B Com Notes > Accountancy and Financial Management > Factors Determining Working Capital Requirements - Accountancy and Financial Management
Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com PDF Download
Factors Determining Working Capital Requirements
Working Capital requirements depends upon various factors. There are no set of rules or formula to determine the Working Capital needs of the business concern. The following are the major factors which are determining the Working Capital requirements.
Fig. Factors Determining Working Capital Requirements
- Nature of business: Working Capital of the business concerns largely depend upon the nature of the business. If the business concerns follow rigid credit policy and sell goods only for cash, they can maintain lesser amount of Working Capital. A transport company maintains lesser amount of Working Capital while a construction company maintains larger amount of Working Capital.
- Production cycle: Amount of Working Capital depends upon the length of the production cycle. If the production cycle length is small, they need to maintain lesser amount of Working Capital. If it is not, they have to maintain large amount of Working Capital.
- Business cycle: Business fluctuations lead to cyclical and seasonal changes in the business condition and it will affect the requirements of the Working Capital. In the booming conditions, the Working Capital requirement is larger and in the depression condition, requirement of Working Capital will reduce. Better business results lead to increase the Working Capital requirements.
- Production policy: It is also one of the factors which affects the Working Capital requirement of the business concern. If the company maintains the continues production policy, there is a need of regular Working Capital. If the production policy of the company depends upon the situation or conditions, Working Capital requirement will depend upon the conditions laid down by the company.
- Credit policy: Credit policy of sales and purchase also affect the Working Capital requirements of the business concern. If the company maintains liberal credit policy to collect the payments from its customers, they have to maintain more Working Capital. If the company pays the dues on the last date it will create the cash maintenance in hand and bank.
- Growth and expansion: During the growth and expansion of the business concern, Working Capital requirements are higher, because it needs some additional Working Capital and incurs some extra expenses at the initial stages.
- Availability of raw materials: Major part of the Working Capital requirements are largely depend on the availability of raw materials. Raw materials are the basic components of the production process. If the raw material is not readily available, it leads to production stoppage. So, the concern must maintain adequate raw material; for that purpose, they have to spend some amount of Working Capital.
- Earning capacity: If the business concern consists of high level of earning capacity, they can generate more Working Capital, with the help of cash from operation. Earning capacity is also one of the factors which determines the Working Capital requirements of the business concern.
The document Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com is a part of the B Com Course Accountancy and Financial Management.
All you need of B Com at this link: B Com
|
44 videos|75 docs|18 tests
|
FAQs on Factors Determining Working Capital Requirements - Accountancy and Financial Management - Accountancy and Financial Management - B Com
| 1. What is working capital? |  |
Ans. Working capital refers to the funds required by a company to carry out its day-to-day operations. It represents the difference between a company's current assets (such as cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt).
| 2. Why is working capital important? | |
Ans. Working capital is important because it helps a company meet its short-term financial obligations and maintain smooth operations. Sufficient working capital ensures that a company can pay its suppliers, cover its operating expenses, manage inventory levels, and fulfill customer orders on time.
| 3. What are the factors that determine working capital requirements? | |
Ans. The factors that determine working capital requirements include:
- Nature of the business: Different industries have different working capital needs based on their operational cycles and cash flow patterns.
- Seasonality: Businesses that experience seasonal fluctuations in demand may require higher working capital during peak seasons.
- Sales volume: Higher sales volume generally leads to increased working capital requirements.
- Credit policy: Companies with more lenient credit policies may need higher working capital to cover potential bad debts.
- Supplier terms: The terms offered by suppliers, such as trade credit and payment terms, can impact working capital requirements.
| 4. How can a company manage its working capital effectively? | |
Ans. To manage working capital effectively, a company can take the following measures:
- Monitor cash flow: Regularly review cash inflows and outflows to ensure sufficient liquidity.
- Optimize inventory levels: Analyze demand patterns, reduce excess inventory, and implement just-in-time inventory management.
- Improve accounts receivable: Implement strict credit policies, monitor receivables, and follow up on overdue payments promptly.
- Negotiate supplier terms: Extend payment terms with suppliers to improve cash flow and reduce immediate working capital needs.
- Streamline operations: Identify and eliminate inefficiencies in the production and supply chain processes to reduce working capital requirements.
| 5. How can a company finance its working capital requirements? | |
Ans. Companies can finance their working capital requirements through various means, including:
- Short-term borrowing: Companies can obtain short-term loans from banks or financial institutions to cover temporary working capital shortfalls.
- Trade credit: Negotiating extended payment terms with suppliers can provide a source of interest-free working capital financing.
- Factoring: Selling accounts receivable to a third-party at a discount allows companies to convert their receivables into immediate cash.
- Equity financing: Companies can raise funds by issuing additional shares of stock to investors, thereby increasing their working capital.
- Internal cash generation: Generating profits and retaining earnings can be used to finance working capital requirements without external borrowing.
Related Exams
About this Document
|
2K Views |
|
4.93/5 Rating |
|
Dec 23, 2024 Last updated |
Document Description: Factors Determining Working Capital Requirements - Accountancy and Financial Management for B Com 2024 is part of Accountancy and Financial Management preparation.
The notes and questions for Factors Determining Working Capital Requirements - Accountancy and Financial Management have been prepared according to the B Com exam syllabus. Information about Factors Determining Working Capital Requirements - Accountancy and Financial Management covers topics
like and Factors Determining Working Capital Requirements - Accountancy and Financial Management Example, for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for Factors Determining Working Capital Requirements - Accountancy and Financial Management.
Introduction of Factors Determining Working Capital Requirements - Accountancy and Financial Management in English is available as part of our Accountancy and Financial Management
for B Com & Factors Determining Working Capital Requirements - Accountancy and Financial Management in Hindi for Accountancy and Financial Management course.
Download more important topics related with notes, lectures and mock test series for B Com
Exam by signing up for free. B Com: Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com
Description
Full syllabus notes, lecture & questions for Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com - B Com | Plus excerises question with solution to help you revise complete syllabus for Accountancy and Financial Management | Best notes, free PDF download
Information about Factors Determining Working Capital Requirements - Accountancy and Financial Management
In this doc you can find the meaning of Factors Determining Working Capital Requirements - Accountancy and Financial Management defined & explained in the simplest way possible. Besides explaining types of
Factors Determining Working Capital Requirements - Accountancy and Financial Management theory, EduRev gives you an ample number of questions to practice Factors Determining Working Capital Requirements - Accountancy and Financial Management tests, examples and also practice B Com
tests
|
44 videos|75 docs|18 tests
|
Download as PDF
|
Explore Courses for B Com exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
Related Searches
Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com
,Exam
,Previous Year Questions with Solutions
,Objective type Questions
,past year papers
,shortcuts and tricks
,ppt
,MCQs
,Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com
,Semester Notes
,Factors Determining Working Capital Requirements - Accountancy and Financial Management | Accountancy and Financial Management - B Com
,mock tests for examination
,Viva Questions
,Extra Questions
,Free
,study material
,video lectures
,Sample Paper
,practice quizzes
,Summary
,Important questions
;
Additional Information about Factors Determining Working Capital Requirements - Accountancy and Financial Management for B Com Preparation
Factors Determining Working Capital Requirements - Accountancy and Financial Management Free PDF Download
The Factors Determining Working Capital Requirements - Accountancy and Financial Management is an invaluable resource that delves deep into the core of the B Com exam.
These study notes are curated by experts and cover all the essential topics and concepts, making your preparation more efficient and effective.
With the help of these notes, you can grasp complex subjects quickly, revise important points easily,
and reinforce your understanding of key concepts. The study notes are presented in a concise and easy-to-understand manner,
allowing you to optimize your learning process. Whether you're looking for best-recommended books, sample papers, study material,
or toppers' notes, this PDF has got you covered. Download the Factors Determining Working Capital Requirements - Accountancy and Financial Management now and kickstart your journey towards success in the B Com exam.
Importance of Factors Determining Working Capital Requirements - Accountancy and Financial Management
The importance of Factors Determining Working Capital Requirements - Accountancy and Financial Management cannot be overstated, especially for B Com aspirants.
This document holds the key to success in the B Com exam.
It offers a detailed understanding of the concept, providing invaluable insights into the topic.
By knowing the concepts well in advance, students can plan their preparation effectively.
Utilize this indispensable guide for a well-rounded preparation and achieve your desired results.
Factors Determining Working Capital Requirements - Accountancy and Financial Management Notes
Factors Determining Working Capital Requirements - Accountancy and Financial Management Notes offer in-depth insights into the specific topic to help you master it with ease.
This comprehensive document covers all aspects related to Factors Determining Working Capital Requirements - Accountancy and Financial Management.
It includes detailed information about the exam syllabus, recommended books, and study materials for a well-rounded preparation.
Practice papers and question papers enable you to assess your progress effectively.
Additionally, the paper analysis provides valuable tips for tackling the exam strategically.
Access to Toppers' notes gives you an edge in understanding complex concepts.
Whether you're a beginner or aiming for advanced proficiency, Factors Determining Working Capital Requirements - Accountancy and Financial Management Notes on EduRev are your ultimate resource for success.
Factors Determining Working Capital Requirements - Accountancy and Financial Management B Com Questions
The "Factors Determining Working Capital Requirements - Accountancy and Financial Management B Com Questions" guide is a valuable resource for all aspiring students preparing for the
B Com exam. It focuses on providing a wide range of practice questions to help students gauge
their understanding of the exam topics. These questions cover the entire syllabus, ensuring comprehensive preparation.
The guide includes previous years' question papers for students to familiarize themselves with the exam's format and difficulty level.
Additionally, it offers subject-specific question banks, allowing students to focus on weak areas and improve their performance.
Study Factors Determining Working Capital Requirements - Accountancy and Financial Management on the App
Students of B Com can study Factors Determining Working Capital Requirements - Accountancy and Financial Management alongwith tests & analysis from the EduRev app,
which will help them while preparing for their exam. Apart from the Factors Determining Working Capital Requirements - Accountancy and Financial Management,
students can also utilize the EduRev App for other study materials such as previous year question papers, syllabus, important questions, etc.
The EduRev App will make your learning easier as you can access it from anywhere you want.
The content of Factors Determining Working Capital Requirements - Accountancy and Financial Management is prepared as per the latest B Com syllabus.
|
© EduRev
|
Education Revolution
|
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup