Advertisements
Advertisements
Question
Explain the following as factors affecting the requirements of working capital:
Nature of business
Advertisements
Solution
Working capital refers to current assets which help in day-to-day business operations.
Nature of business: A company which deals in trading or services will require low working capital because it manages a small operating cycle and absence of processing. On the other hand, a company manages a large operating cycle will require high working capital as the conversion of raw materials into the finished product before the end of sale transaction.
Manufacturing organisations ⇒ High working capital
Trading/Service organisations ⇒ Low working capital
RELATED QUESTIONS
Answer the following question:
The Return on Investment (ROI) of a company ranges between 10 - 12% for the past three years. To finance its future fixed capital needs, it has the following options for borrowing debt:
Option ‘A’: Rate of interest 9%
Option ‘B’: Rate of interest 13%
Which source of debt, ‘Option A’ or ‘Option B’, is better? Give reasons in support of your answer. Also, state the concept being used in taking the decision.
Explain briefly any four factors that affect the working capital requirement of a company.
Explain the following as factor affecting the requirements of fixed capital:
Scale of operations
Explain the following as factor affecting the requirements of fixed capital:
Choice of technique
Explain the following as factors affecting the requirements of working capital:
Scale of operations
Explain the following as factors affecting the requirement of working capital:
The credit allowed and availed
Ramnath is into the business of assembling and selling of televisions. Recently he has adopted a new policy of purchasing the components on three months credit and selling the complete product in cash. Will it affect the requirement of working capital? Give reason in support of your answer.
What is working capital?
Working capital is calculated as?
Net working capital may be defined as the:
A business firm should have extra funds to meet future emergencies. Identify the type of working capital indicated here.
Which group consists of fixed assets?
Which group consists of current assets?
What are decisions about investment in long-term assets called?
Through which sources must fixed capital be financed?
Which sources should never be used to finance fixed assets?
What is the effect of a larger Scale of Operations on fixed capital?
What is the effect of higher expected growth on fixed capital?
How does leasing affect fixed capital requirement?
