Subscribe:

Pages

Factors Affecting Working Capital Or Determinants Of Working Capital

Requirements Of working capital depend upon various factors such as nature of business, size of business, the flow of business activities. However, small organization relatively needs lesser working capital than the big business organization. Following are the factors which affect the working capital of a firm:

1. Size Of Business
Working capital requirement of a firm is directly influenced by the size of its business operation. Big business organizations require more working capital than the small business organization. Therefore, the size of organization is one of the major determinants of working capital.

2. Nature Of Business
Working capital requirement depends upon the nature of business carried by the firm. Normally, manufacturing industries and trading organizations need more working capital than in the service business organizations. A service sector does not require any amount of stock of goods. In service enterprises, there are less credit transactions. But in the manufacturing or trading firm, credit sales and advance related transactions are in large amount. So, they need more working capital.

3. Storage Time Or Processing Period
Time needed for keeping the stock in store is called storage period. The amount of working capital is influenced by the storage period. If storage period is high, a firm should keep more quantity of goods in store and hence requires more working capital. Similarly, if the processing time is more, then more stock of goods must be held in store as work-in-progress.

4. Credit Period
Credit period allowed to customers is also one of the major factors which influence the requirement of working capital. Longer credit period requires more investment in debtors and hence more working capital is needed.But, the firm which allows less credit period to customers needs less working capital.

5. Seasonal Requirement
In certain business, raw material is not available throughout the year. Such business organizations have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the entire year. Thus, a huge amount is blocked in the form of raw material inventories which gives rise to more working capital requirements.

6. Potential Growth Or Expansion Of Business
If the business is to be extended in future, more working capital is required. More amount of working capital is required to meet the expansion need of business.

7. Changes In Price Level
Change in price level also affects the working capital requirements. Generally, the rise in price will require the firm to maintain large amount of working capital as more funds will be required to maintain the sale level of current assets.

8. Dividend Policy
The dividend policy of the firm is an important determinant of working capital. The need for working capital can be met with the retained earning. If a firm retains more profit and distributes lower amount of dividend, it needs less working capital.

9. Access To Money Market
If a firm has good access to capital market, it can raise loan from bank and financial institutions. It results in minimization of need of working capital.

10. Working Capital Cycle
When the working capital cycle of a firm is long, it will require larger amount of working capital. But, if working capital cycle is short, it will need less working capital.

11. Operating Efficiency
The operating efficiency of a firm also affects the firm's need of working capital. The operating efficiency of the firm results in optimum utilization of assets. The optimum utilization of assets in turn results in more fund release for working capital.

14 comments:

kumar N N said...

Nice work

don atios said...

great work. was of great help to me.

Kenneth Dowell said...

Thank you for sharing your article about factors affecting working capital or determinants of working capital. I have really enjoyed reading your blog. Just keep updating on us!

Capital Accounts Collection

Marcus Grant said...

Good information its very useful. With all those category you cant go wrong with Capital account if you would like you can check this https://capitalbillpay.com/

john milton said...

Really very good and informative post having a lot information about mobile payment solution and margin management . Thanks for sharing the post. Keep posting further....!

vivian lasrado said...

Good one.

Kpobu chikwelu paul said...

Thanks for the good work.

Sohan Achar said...

Thanks for gud work

celine sanderson said...

You are the best for sharing! I thought that you did a magnificent job on the article. What else would you recommend for my working capital for small business?

Beenish Wazir Ali said...

Thanks.. it helped me complete my assignment :)

siva prakash said...

Great work. It helps me a lot.

Ajay said...

thanks alot sir for your valuable matter in a systematic manner. keep this type of uploads in future too...

Amy Chege said...

Thanks alot you have really assisted me with ma research

Alicia Aladin said...

Good news,

We at Lapo loan house offers you private, commercial and personal loans with very minimal annual interest rates from 2.5% for 1 year to 50 years repayment term in any part of the world. We give out loans ranging from $ 5,000.00 to $ 100,000,000.00 USD. The lender's Email: lapo_loanhouse_ng@outlook.com

Our loans are well insured for maximum security and customer's Satisfaction is our priority, Do you lose sleep at night worried about how to get a legitimate loan lender Or You bite your nails so fast? Rather than beat yourself, we give you the best guide offers and hassle free credit, contact Lapo loan house, loan specialists who help stop bad credit history to discover the winning solution for our mission.

Qualifications:
1)The Borrower must be at least 18yrs old
2)Even with Bad credit, we still Guarantee the Borrower the Loan
3)The Loan Can Be Granted Even With No Collateral Present or
available (Unsecured)
4)You do not need a Co- Signer

Interested parties may contact us by email:
Lender name: Mrs. Joan William
The Company's Email: lapo.loanhouse.ng@gmail.com
The lender's Email: lapo_loanhouse_ng@outlook.com
Tel: +447937411575

Best wishes
Alicia Yung.
Public Relations Officer.

Post a Comment

Sitemeter