Question

Which of the following will require higher working capital?

Options

• Trading organisations

• Short processing cycles

• High level of competition

• Strict credit policy towards debtors

Answer 1

Trading organisations

Explanation:

• Trading firms typically hold large stocks of goods and extend credit to buyers, so they need more funds tied up in inventory and receivables, hence higher working capital.
• Short processing cycles and strict credit policy reduce the need for working capital (JIT/lean and tight credit lowers inventories/receivables). High competition may affect margins, but does not, by itself, require more working capital.