Friday, 27 September 2013

Factors Determining the Amount of Working Capital

Factors Determining the Amount of Working Capital:

1)     Size of small scale industry

2)     Process of Production:

a.       Short Process: Less working capital

b.       Long Process: More working capital

3)     Proportion of raw material  to total cost:

a.       Price of raw material

b.       Quantity of raw material

4)     Term of Purchase and Sales

a.       Use of credit

5)     Turnover of Inventories:

a.       Large Inventory: Inventory turnover slow, Large working capital required

b.       Less Inventory: inventory turnover quick, small working capital required

6)     Importance of Labor:

a.       Labor intensive: More working capital required

7)     Cash requirement

8)     Seasonal Variations:

a.       During the season working capital requirement is High, more WC is required

9)     Banking Facilities:

a.       Good banking connections, Minimum working capital required

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