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Question
Explain the following as a factor affecting the requirement of working capital:
Level of competition
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Solution
The higher the extent of competition in the market, the larger is the amount of stock of goods that the firms must maintain to meet the demand; therefore, the higher is the requirement of working capital. Businesses occasionally have to lengthen the credit terms as well because of competition.
More competition ⇒ High working capital
Less competition ⇒ Low working capital
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