Factors Determining Working Capital Requirement¶
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Nature or Character of Business: The type of business and its specific requirements impact the working capital needed.
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Size of Business: The scale of operations and the volume of transactions influence the amount of working capital required.
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Production Policy: The production strategy, such as make-to-order or make-to-stock, affects the working capital needs.
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Length of Production cycle: The time taken to convert raw materials into finished goods affects the working capital requirements.
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Seasonal variations: Businesses with seasonal demand experience fluctuations in working capital needs throughout the year.
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Rate of stock turnover: The speed at which inventory is sold and replaced impacts the working capital requirements.
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Credit Policy: The terms and conditions for extending credit to customers affect the working capital position.
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Business cycles: Economic cycles and fluctuations in demand impact the working capital needs of a business.
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Rate of Growth of Business: Rapidly growing businesses require additional working capital to support expansion.
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Price Level Changes: Inflation or deflation can affect the working capital requirements due to changes in costs and prices.
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Working Capital Cycle: The time it takes to convert cash into inventory, inventory into sales, and sales back into cash determines the working capital needs.
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Earning capacity and dividend policy: The profitability and dividend distribution policy of a business influence the working capital position.
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Other factors: Various other factors, such as technological advancements or regulatory changes, can impact working capital requirements.Sure! Here are one-line explanations for each point:
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