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Explain the Following as Factor Affecting the Requirements of Working Capital: Availability of Raw Material - Business Studies

Explain the following as factor affecting the requirements of working capital:

Availability of raw material

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Solution

Availability of raw materials: A firm does not have a huge stock of inventories of raw material if the raw materials are easily available for them. Therefore, the amount of working capital required will be less in this situation. On the other hand, if the raw materials are not easily available or their supply is not smooth, then the company must maintain a huge stock of raw material to ensure uninterrupted operations, thereby requiring a large working capital.

Difficult to obtain raw material ⇒ High working capital

Easy to obtain raw material ⇒ Low working capital

Concept: Factors Affecting Fixed and Working Capital Requirements
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