Introduction to Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question
Maharashtra BoardEnglish MediumSTD 12 Commerce / ArtsSecretarial PracticeIntroduction to Corporate Finance4 Marks
Question
There are various factors affecting the requirement of working capital.
✓
Answer
The nature and size of a business affect the requirement of working capital. Trading or merchandising firms and big retail enterprises need a large amount of capital compared to small firms which need a small amount of working capital.
If the period of the production cycle is longer then the firm needs more amount of working capital. If the manufacturing cycle is short, it requires less working capital.
During the boom period sales will increase leading to increased investment in stocks, thus requiring additional working capital and during the recession, it is vice versa.
Along with the expansion and growth of the firm or company in terms of sales and fixed assets, the requirement of working capital increases.
If there is proper coordination, communication, and co-operation between production and sales departments then the requirement of working capital is less.
A liberal credit policy increases the possibility of bad debts and in such cases, the requirement of working capital is high, whereas a firm making cash sales requires less working capital.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.