Question:
Explain how the following factors affect the working capital requirement of a business:
(i) Operating efficiency
(ii) Credit availed
Explain how the following factors affect the working capital requirement of a business:
(i) Operating efficiency
(ii) Credit availed
(ii) Credit availed
Updated On: Feb 19, 2025
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Solution and Explanation
Factors affecting working capital requirement of a business:
(i) Operational efficiency:
- Firms manage their operations with varied degrees of efficiency.
- Such efficiencies may reduce levels of raw material, finished goods and debtors, resulting in lower working capital.
(ii) Credit availed:
- A firm allows credit to its customers and also gets credit from its suppliers.
- To the extent the firm avails credit on purchases, the working capital requirement is reduced.
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