What are the Main Factors that Influence Working Capital?..

 Working Capital Management...

The Capital required to meet day to day expenses of a business is termed as working capital.It comprises of those assets which can be converted into cash within a period of one year.These are most liquid they affect profitability & liquidity of the business.

    

Working Capital have two concepts:-

1) Gross Working Capital -It is the sum of total current assets.

2) Net Working Capital - It is the excess of Current assets over current liabilities.

         CURRENT ASSETS - CURRENT LIABILITIES.

Factors affecting Working Capital...

1) Nature of Business - Nature of Business is very much affect working Capital,if the nature of business is of production then it would process raw material and convert them into finished goods.This process requires more time and more working Capital,If business is of trading nature,so businessmen purchase finished goods and sell it to consumers ,there would be no need to processing,So no working Capital or little working Capital is required.

2) Scale of Production -Scale of production is also very much affect the working Capital requirement.if the size of business is large then more working capital may be required as production would take place on a larger scale.For eg Cottage and Small scale businesses would require less working Capital as compared to locomotive industry.

3) Production Cycle -  Production cycle means time taken in conversion of raw material into finished goods ,if the production cycle is longer then more working capital may be required otherwise low working Capital is required.

4) Growth Prospects - If the company has the prospects of growth or chances to expands its size and capacity in future,more working capital would be required for eg if business that plans to increase the production & sale targets, would require more working capital.

           

5) Seasonal Factors - Business of seasonal items like woolen, umbrella,rain courts etc require more working capital in their season because the business of these items are in peak and other season low working capital would be required.

6) Inflation - In case of inflation general price level is high in the economy where raw material, labour and fuel become expensive,So more working capital would require.

7) Credit Availed- In case the business has a facility of getting goods on credit from the supplier than it does not block it's capital and manage to work with less working capital, otherwise businesses requires more working capital because they cannot credit facility.

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