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Question
Ramu is buying and selling ice-cream.Explain his working capital requirement.
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Solution
Ramu is a trading entrepreneur.
- Trading entrepreneur is one who undertake trading activities, whether domestic or overseas.
- They deal in buying and selling of manufactured goods.
- Before launching the business they identify the potential market for his product in order to stimulate the demand.
They believe in creating a demand in the market to market survey and push many ideas ahead of others in the form of demonstration to promote
Operating cycle or cash conversion cycle for trading business:
- Money needed to fund the normal, day to day operations of a business is known as the Working Capital.
- For trading, where there is no manufacturing (or conversion), the operating cycle will be shorter.
- Ramu needs less amount of working capital as ice-cream is a perishable goods and can’t keep for a long time period.
- Therefore, Ramu has to purchase and sale of goods through cash only.
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