Advertisements
Advertisements
प्रश्न
Explain briefly any four factors that affect the working capital requirement of a company.
Advertisements
उत्तर
Working capital refers to current assets which help in day-to-day business operations. For example, cash, debtors and stock. Working capital has an impact on both liquidity and profitability of a business.
Four factors affecting the working capital requirement of a company
1) Type of Business: The nature of a business is one of the important determinants of working capital requirement. For instance, organisations dealing in services have shorter operating cycles, i.e. no processing is done in such organisations. Accordingly, they require low working capital. As against this, an organisation dealing in manufacturing would require large working capital. This is because it involves a large operating cycle, i.e. the raw materials first need to be transformed to finished goods before they are offered for sale.
2) A scale of Operations: Firms which operate on a larger scale require greater working capital than those which operate on a lower scale. This is because firms with the greater scale of operations are required to maintain the high stock of inventory and debtors. As against this, a business with a smaller scale of operation requires less working capital.
3) Fluctuations in Business Cycle: In various phases of the business cycle, the requirement of working capital is different. For instance, in the phase of a boom, both production and sales are higher. Accordingly, the requirement of working capital is also high. As against this, in the phase of depression, the demand is low, and so production and sale are low. Accordingly, there is less requirement of working capital.
4) Production Cycle: Production cycle refers to the time gap between receiving goods and their processing into final goods. Longer the production cycle for a firm, larger are the requirements of working capital and vice versa. This is because a longer production cycle would imply greater inventories and other related expenses, so greater requirement of working capital.
APPEARS IN
संबंधित प्रश्न
Match the pairs
|
Group A |
Group B |
|
a. Fixed Capital |
1. Owned Capital |
|
b, Overdraft facility |
2. Bearer document |
|
c. Share certificate |
3. Investment in fixed assets |
|
d. Debentures |
4. Current Account |
|
e. Return on shares |
5. Application Money |
|
|
6. Dividend |
|
7. Investment in current assets |
|
|
8. Borrowed capital |
|
|
9. Savings Account |
|
|
10. Registered Document |
Explain the following as factors affecting the requirements of fixed capital:
Financing alternatives
Explain the following as factors affecting the requirements of working capital:
Nature of business
Explain the following as factors affecting the requirements of working capital:
Scale of operations
Explain the following as factors affecting the requirements of working capital:
Production cycle
Varunica Ltd., a reputed truck manufacturing company, needs rupees twenty crores as additional capital to expand its business. Mr. Alind Jindal, the CEO of the company, wants to raise funds through equity. The Finance Manager, Mr. Nikhil Sachdeva, suggests that the existing shareholders be offered the privilege to subscribe to new issue of shares as per the terms and conditions of the company which was agreed by Mr. Alind Jindal.
Name the method through which the company decided to raise additional capital.
Amrit is running a ‘transport service’ and earning good returns by providing this service to industries. Giving reason, state whether the working capital requirement of the firm will be ‘less’ or ‘more’.
Write a word or a term or a phrase which can substitute the following statement :
The difference between current assets and current liabilities.
Companies with a higher growth potential are likely to
Higher working capital usually results in :
Current assets are those assets which get converted into cash
A fixed asset should be financed through
Current assets of a business firm should be financed through
Working capital is calculated as?
______ decision involves the decision regarding the distribution of profit or surplus of the company.
Net working capital may be defined as the:
Read the following text and answer the following question on the basis of the same:
Mr. A. Bose is running a successful business. Mr. Bose is the owner of R. K. Cement Ltd. Mr. Bose decided to expand his business by acquiring a Steel Factory. This required an investment of Rs. 60 crores. To seek advice in this matter, he called his financial advisor Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%). Employ more of cheaper debt may enhance the EPS. Mr. Ghosh also suggested him to take loan from a financial institution as the cost of raising funds from financial institutions is low. Though this will increase the financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible expense for computation of tax liability. After due deliberations with Mr. Ghosh, Mr. Bose decided to raise funds from a financial institution.
"Mr. T. Ghosh who advised him about the judicious mix of equity (40%) and Debt (60%)." The proportion of debt in the overall capital is called ______.
