“In peak season because of higher level of activity, larger amount of working capital is required and vice versa”. Which factor is being considered here for deciding the working capital requirements?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Seasonal factors
Option (1) Business Cycle — Incorrect. The business cycle is the swing between boom and depression over several years. In a boom more working capital is needed, in a depression less. It is not about the seasons of one year.
Option (2) Seasonal factors — Correct. Most businesses are busier in some months than in others. In the peak season, production and sales are high, so more stock and more cash are needed. In the lean season, less is needed. This is the seasonal factor of working capital.
Option (3) Operating efficiency — Incorrect. A firm that manages its stock and collects its dues quickly needs less working capital. This does not change with the season.
Option (4) Growth Prospects — Incorrect. A firm expecting to grow needs more working capital to support higher production and sales in future, not only in a busy season.
NCERT (2026-27 Edition): “Factors Affecting the Working Capital Requirements … 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. |