List any three factors affecting the Working Capital requirement of a company.

List any three factors affecting the Working Capital requirement of a company.

Answer.
Factors affecting working capital requirement of the company (Any three) :
1. Nature of Business influences working capital requirements in a trading organisation which usually needs a smaller amount of working capital compared to a manufacturing organisation, while service industries which usually do not have to maintain inventory require less working capital.
2. Scale of operations influences working capital requirements in large organisations which require a large amount of working capital as compared to the organisations which operate on a lower scale.
3. Business cycle affects the requirement of working capital by a firm, as in case of a boom a larger amount of working capital is required as compared to the period of depression.
4. Seasonal Factors affect the working capital requirement, as in peak season large amounts of working capital is required and lower amount is required in the lean season.
5. Production cycle affects the working capital requirement, as it is higher in firms with longer processing cycles and lower in firms with shorter processing cycles.
6. Credit allowed in a firm with liberal credit policy results in a higher amount of debtors, increasing the requirement of working capital.
7. Credit availed by a firm, to the extent to which the firm avails the credit on purchases the working capital requirement is reduced.
8. Operating efficiency may reduce the level of raw materials, finished goods and debtors resulting in lower requirement of working capital.
9. Availability of raw material influences the working capital requirement as larger the lead time, larger the quantity of material to be stored and larger shall be the amount of working capital required.
10. If the growth potential of a concern is perceived to be higher, it will require a larger amount of working capital.
11. Higher level of competitiveness may necessitate larger stocks and increases working capital requirement.
12. The working capital requirement of a business becomes higher with higher rate of inflation.