Rekha is the Factory Manager of an Export house manufacturing garments. The factors which she will keep into consideration while deciding about working capital requirements will include:
(A) Operating administration
(B) Suitability of raw materials
(C) Level of competition
(D) Growth prospects
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C) and (D) only
Working capital is the money a firm keeps in current assets, such as raw material, stock and debtors, to run its day-to-day work. How much it needs depends on factors such as the nature of business, scale of operations, operating efficiency, availability of raw material, growth prospects and level of competition.
(A) Operating administration — Incorrect. The factor is operating efficiency. A firm that uses its stock quickly and collects cash from debtors faster needs less working capital. There is no factor called “operating administration”.
(B) Suitability of raw materials — Incorrect. The factor is availability of raw material, not its suitability. If raw material is available freely and regularly, Rekha can keep smaller stocks; if supply is uncertain, larger stocks and more working capital are needed. Check each word of an option against the book’s list before you mark it.
(C) Level of competition — Correct. In a competitive market the firm must keep larger stocks to meet urgent orders, and may have to give customers longer credit. Both raise the need for working capital.
(D) Growth prospects — Correct. An export house planning to grow will produce and sell more, so it needs more funds tied up in stock and debtors.
NCERT (2026-27 Edition): “Factors Affecting the Working Capital Requirements … 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. …” “10. Growth Prospects: If the growth potential of a concern is perceived to be higher, it will require larger amount of working capital so that it is able to meet higher production and sales target whenever required.” “11. Level of Competition: Higher level of competitiveness may necessitate larger stocks of finished goods to meet urgent orders from customers. This increases the working capital requirement. …” |