Question

Explain the following as a factor affecting the requirement of working capital: 

Level of competition

Answer 1

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