Business Studies

Question

State any three factors that the finance manager of the company should keep in mind while arranging its working capital?

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Studies Tanya Dhamija 7 months 2 Answers 64 views Bronze 0

Answers ( 2 )

  1. 1. Nature of business.
    2. Scale of operations. (very imp)
    3. Business Cycle.

  2. 1. Size of Business-
    Size of the business directly affects the working capital requirements. Greater the size of a business unit generally large will be the requirements of working capital. Actually size may be measured in terms of the scale of operations. A firm with larger scale of operations will need more working capital than a small firm. However, in some cases even a smaller concern may need more working capital due to high overhead charges, inefficient use of available resources and other economic disadvantages of small size.
    2. Manufacturing Cycle-
    Needs of working capital is in direct proportion to length of manufacturing cycle i.e. longer the process period of manufacture, large is the amount of working capital needs. The longer manufacturing time blocks money in purchase of raw material and other suppliers, labor and service costs for long period before the finished product is finally obtained.
    3. Seasonal variations-
    The certain industries availability of raw material is seasonal and cannot be obtained throughout the year in such a situation it becomes must to buy raw material in bulk to ensure the constant production during the entire year. Thus, a large amount remains block in the form of raw material and it gives size to more working capital needs generally, during
    the busy season, a firm. Requires larger, working capital than in the stack season. It is not always possible to shift the burden of production and sale to slack period. For example, in case of sugar mill more working capital will be needed at the time of crop and manufacturing.

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