Read the following passage carefully and answer the given questions.

Arun wants to open a retail mart. He is thinking over the selection of the best financing alternative. He made an estimation that ₹40 lakhs, is an adequate amount of money to start the venture. He is planning to finance the business by investing ₹25 lakhs of his own money and the rest would be financed by debts. He is very careful about the future cash-flow in the business because the cost of raising funds from external sources is significant. He is working out to ensure that enough funds are available at the right time. If adequate funds are not available, the firm will not be able to honour its commitments and carry out its plans. On the other hand, if excess funds are available, it will unnecessarily add to the cost and may encourage wasteful expenditure. Since it will be a trading business, it needs lower investment in fixed assets. Since Arun is planning to initiate the business from a small level, the quantum of inventory and debtors required is generally low.

"Since Arun is planning to initiate the business from a small level, the quantum of inventory and debtors required is generally low."

Which factor is highlighted by the aforesaid statement?

Scale of operation

The correct answer is option 1 - Scale of operation.

The statement — "Since Arun is planning to initiate the business from a small level, the quantum of inventory and debtors required is generally low" — directly refers to the size or scale at which Arun is planning to operate his business. A smaller scale of operation typically requires less working capital, inventory, and credit sales (debtors).

Scale of Operations: For organisations which operate on a higher scale of operation, the quantum of inventory and debtors required is generally high. Such organisations, therefore, require large amount of working capital as compared to the organisations which operate on a lower scale.