Practicing Success
Practicing Success
CUET Preparation Today
Which of the following statement is TRUE regarding Factors affecting working capital Requirements ? |
Other factors remaining same Trading Business requires less working capital than Manufacturing Business The organizations which operate on a higher scale require less working capital In case of boom, lesser working capital is required A liberal credit policy requires less amount of working capital |
Other factors remaining same Trading Business requires less working capital than Manufacturing Business |
The correct answer is option (1) : Other factors remaining same Trading Business requires less working capital than Manufacturing 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. |
