Identify the factors affecting the requirement of Working Capital?
(A) Seasonal Factors
(B) Production Cycle
(C) Credit Policy
(D) Level of Competition
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A), (B), (C) and (D)
(A) Seasonal Factors — Correct. In the peak season activity is high, so more working capital is needed. In the lean season less is needed.
(B) Production Cycle — Correct. The production cycle is the time between receiving raw material and turning it into finished goods. The longer it is, the longer money stays locked up in stock, so more working capital is needed.
(C) Credit Policy — Correct. A firm that gives its customers long credit has to carry more debtors, so it needs more working capital. Credit it gets from its own suppliers reduces the need.
(D) Level of Competition — Correct. Where competition is high, the firm must keep larger stocks of finished goods to meet orders at once, and may have to give easier credit. Both raise the working capital needed.
NCERT (2026-27 Edition): “Seasonal Factors: Most business have some seasonality in their operations. In peak season, because of higher level of activity, larger amount of working capital is required. …” “Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Some businesses have a longer production cycle while some have a shorter one. Duration and the length of production cycle, affects the amount of funds required for raw materials and expenses. …” “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.” “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. …” |