Match List-I (factors affecting the working capital requirement) with List-II (how they affect it):
| List-I | List-II |
|---|---|
| (A) Nature of business | (I) A trading firm needs less, as there is usually no processing. |
| (B) Scale of operations | (II) Paying suppliers three months after purchase lowers the requirement. |
| (C) Growth prospects | (III) A firm seen as having high potential to expand needs more, to meet higher sales targets. |
| (D) Credit availed | (IV) A firm working at a higher level holds more inventory and debtors, so it needs more. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A)-(I), (B)-(IV), (C)-(III), (D)-(II)
| List-I | List-II | Reason |
|---|---|---|
| (A) Nature of business | (I) A trading firm needs less, as there is usually no processing. | A trading firm can sell goods soon after it buys them, with no raw material to convert. So it needs less working capital than a manufacturing firm. |
| (B) Scale of operations | (IV) A firm working at a higher level holds more inventory and debtors, so it needs more. | A firm on a higher scale keeps more inventory and debtors. Both are current assets, so its working capital need is larger. |
| (C) Growth prospects | (III) A firm seen as having high potential to expand needs more, to meet higher sales targets. | A firm with high growth potential keeps extra working capital. It can then meet higher production and sales targets whenever they come. |
| (D) Credit availed | (II) Paying suppliers three months after purchase lowers the requirement. | Credit availed is the credit a firm gets from its suppliers. It pays for purchases later, so less of its own money is tied up. |
NCERT (2026-27 Edition): “Factors Affecting the Working Capital Requirements 1. Nature of 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. …” “Factors Affecting the Working Capital Requirements … 2. 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.” “Factors Affecting the Working Capital Requirements … 7. 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.” “Factors Affecting the Working Capital Requirements … 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.” |