Question

Explain how the following factors affect the working capital requirement of a business: (i) Operating efficiency
(ii) Credit availed

Answer 1

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.