Match List-I (factors affecting the working capital requirements) with List-II (what the factor says):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Business cycle | (I) | In a boom, larger sales and production need a larger amount of working capital. |
| (B) | Seasonal factors | (II) | Managing raw materials well, shown in a higher inventory turnover ratio, lets a firm manage with a smaller balance. |
| (C) | Operating efficiency | (III) | When the lead time for getting supplies is longer, a larger quantity has to be stored. |
| (D) | Availability of raw material | (IV) | In the busy months of the year, a higher level of activity needs a larger amount of working capital. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A)-(I), (B)-(IV), (C)-(II), (D)-(III)
| List-I | List-II | Reason |
|---|---|---|
| (A) Business cycle | (I) In a boom, larger sales and production need a larger amount of working capital. | A boom is a phase of the business cycle. Sales and production rise in a boom, so more working capital is needed. |
| (B) Seasonal factors | (IV) In the busy months of the year, a higher level of activity needs a larger amount of working capital. | The busy months are the peak season. Activity is higher then, so more working capital is needed than in the lean season. |
| (C) Operating efficiency | (II) Managing raw materials well, shown in a higher inventory turnover ratio, lets a firm manage with a smaller balance. | An efficient firm keeps lower stocks of raw material. A higher inventory turnover ratio shows this, so less working capital is needed. |
| (D) Availability of raw material | (III) When the lead time for getting supplies is longer, a larger quantity has to be stored. | Lead time is the gap between placing an order and getting the material. A longer lead time means more material must be stored. |
NCERT (2026-27 Edition): “3. Business Cycle: Different phases of business cycles affect the requirement of working capital by a firm. In case of a boom, the sales as well as production are likely to be larger and, therefore, larger amount of working capital is required. As against this, the requirement for working capital will be lower during the period of depression as the sales as well as production will be small.” “4. Seasonal Factors: Most business have some seasonality in their operations. In peak season, because of higher level of activity, larger amount of working capital is required. As against this, the level of activity as well as the requirement for working capital will be lower during the lean season.” “8. Operating Efficiency: Firms manage their operations with varied degrees of efficiency. For example, a firm managing its raw materials efficiently may be able to manage with a smaller balance. This is reflected in a higher inventory turnover ratio. Similarly, a better debtors turnover ratio may be achieved reducing the amount tied up in receivables. Better sales effort may reduce the average time for which finished goods inventory is held. Such efficiencies may reduce the level of raw materials, finished goods and debtors resulting in lower requirement of working capital.” “9. Availability of Raw Material: If the raw materials and other required materials are available freely and continuously, lower stock levels may suffice. If, however, raw materials do not have a record of un-interrupted availability, higher stock levels may be required. In addition, the time lag between the placement of order and the actual receipt of the materials (also called lead time) is also relevant. Larger the lead time, larger the quantity of material to be stored and larger shall be the amount of working capital required.” |