Question

Read the given passage and answer the following question:

VTM Textile Mills is one of the largest manufacturers of various types of textile products from Ahmedabad, Gujarat. The company is equipped with state-of-the-art dyeing, printing and processing and garmenting facilities. Due to the prolonged pandemic and slackness in the market demand, the company is facing shortage of funds. The company has started preliminary work for expansion of textile manufacturing capacity in their existing plant at Ahmedabad as well as installation of a new manufacturing unit at Panipat, Haryana at an estimated cost of ₹ 10 Crore. The company has decided to issue equity shares for this purpose. Also, the company needs funds for meeting its day-to-day expenses like daily wages and overheads etc. The finance manager of the company approached one of its suppliers to grant two months credit on purchase of raw cotton. This would enable the company to get cotton supplies without making immediate payments.

“Also, the company needs funds for meeting its day-to-day expenses like daily wages and overheads etc.”

Which financial need of the business is highlighted in the given lines?

Options

• Fixed capital requirements

• Working capital requirements

• Both Fixed capital requirements and Working capital requirements

• Neither Fixed capital requirements and Working capital requirements

Answer 1

Working capital requirements

Explanation:

The line talks about the need for funds to cover day-to-day expenses like wages, overheads, and running costs. These are part of working capital requirements, funds needed for daily operations.

• Fixed capital is used for long-term investments like buildings and machinery.
• Working capital is for everyday expenses like wages, bills, and raw materials.