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Question
Explain the following as factors affecting the requirement of working capital:
The credit allowed and availed
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Solution
The credit allowed and availed: Credit means allowing the sale of goods without immediate cash payment, and hence, the number of debtors increases and in turn the requirement of working capital will increase. A strict credit policy will reduce the requirement of working capital.
Credit allowed
Liberal credit policy ⇒ High working capital
Strict credit policy ⇒ Low working capital
Credit availed
Difficult to avail credit from suppliers ⇒ High working capital
Easy to avail credit from suppliers ⇒ Low working capital
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Scale of operations
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Current assets of a business firm should be financed through
______ refers to the decisions regarding where to invest so as to earn the highest possible returns on investment.
______ involve identifying various sources of funds and deciding the best combination for raising the funds.
Net working capital may be defined as the:
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Reason (R): Commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
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Dhaval Acharya, after acquiring a bachelor’s degree in Hotel Management joined his father’s chain of vegetarian restaurants in Ahmednagar. Being young and enterprising, he suggested his father to add a new section of vegetarian bakery items which required an investment of ₹ 5 crores. His father Mr. Aariketh Acharya suggested him to take the decision with caution and understood everything comprehensively as bad decision may damage the financial fortune of business.
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