Ramanuj is thinking of starting an advertising agency. What will be the amount of working capital requirement for him?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Less working capital
Option (1) Less working capital — Correct. An advertising agency is a service business. Service industries usually do not have to maintain inventory, so they require less working capital.
Option (2) More working capital — Incorrect. More working capital is needed by a manufacturing business, where raw material has to be turned into finished goods before sales.
Option (3) No working capital — Incorrect. Every business needs some working capital for its day-to-day expenses. A service business needs less, not none.
Option (4) Negative working capital — Incorrect. Working capital is the fund needed for the day-to-day running of the business, so the requirement is a positive amount. Negative working capital does not fit here.
NCERT (2026-27 Edition): “1. Nature of Business: The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation. This is because there is usually no processing. Therefore, there is no distinction between raw materials and finished goods. Sales can be effected immediately upon the receipt of materials, sometimes even before that. In a manufacturing business, however, raw material needs to be converted into finished goods before any sales become possible. Other factors remaining the same, a trading business requires less working capital. Similarly, service industries which usually do not have to maintain inventory require less working capital.” |