Identify the correct decision that is affected by the following factors
-Seasonal factors
-Availability of raw material
-Scale of operations
-Inflation
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → The working capital requirements
Option (1) The choice of capital structure — Incorrect. The mix of debt and equity depends on factors such as cash flow position, cost of debt and risk. Seasons and raw material do not decide it.
Option (2) The requirement for fixed capital — Incorrect. Fixed capital depends on the nature of business, the choice of technique, technology upgradation and growth prospects.
Option (3) The working capital requirements — Correct. Working capital is the money needed for day-to-day operations: stock, debtors and cash. It rises in the busy season, rises when raw material is hard to get and must be stocked, rises with the scale of operations, and rises with inflation because the same goods cost more. All four listed factors act on it.
Option (4) The Dividend decision — Incorrect. The dividend decision depends on earnings, stability of earnings, cash flow and growth opportunities.
NCERT (2026-27 Edition): “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.” “4. 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. …” “9. Availability of Raw Material: If the raw materials and other required materials are available freely and continuously, lower stock levels may suffice. …” “12. Inflation: With rising prices, larger amounts are required even to maintain a constant volume of production and sales. …” |