Match the following factors affecting the working capital requirement:
| LIST-I | LIST-II |
| (Factors) | (Explanation) |
| A. Level of Competition | I. A firm allows credit to its customers. It may also get credit from its suppliers. |
| B. Credit Availed | II. A liberal credit policy results in a higher number of debtors, increasing the requirement of working capital. |
| C. Inflation | III. May necessitate larger stocks of finished goods to meet urgent orders from customers |
| D. Credit Allowed | IV. Larger amounts are required even to maintain a constant volume of production and sales. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → A-III, B-I, C-IV, D-II
(A) Level of Competition — this matches (III) May necessitate larger stocks of finished goods to meet urgent orders from customers. In a competitive market a customer who has to wait simply buys from a rival. So the firm must keep larger stocks ready, and that stock needs more working capital.
(B) Credit Availed — this matches (I) A firm allows credit to its customers. It may also get credit from its suppliers. Credit availed is the credit the firm receives from its suppliers. When it can buy raw material now and pay later, it needs less money of its own to keep running.
(C) Inflation — this matches (IV) Larger amounts are required even to maintain a constant volume of production and sales. When prices rise, raw material and labour cost more. The same output then needs more money.
(D) Credit Allowed — this matches (II) A liberal credit policy results in a higher number of debtors, increasing the requirement of working capital. Credit allowed is the credit the firm gives to its customers. Money due from debtors is locked up until they pay, so a liberal policy raises the working capital needed.
NCERT (2026-27 Edition): “Credit Allowed: Different firms allow different credit terms to their customers. These depend upon the level of competition that a firm faces as well as the credit worthiness of their clientele. A liberal credit policy results in higher amount of debtors, increasing the requirement of working capital.” “Credit Availed: Just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails the credit on purchases, the working capital requirement is reduced.” “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. …” “Inflation: With rising prices, larger amounts are required even to maintain a constant volume of production and sales. The working capital requirement of a business thus, become higher with higher rate of inflation. …” |