FACTORS DETERMINING WORKING CAPITAL

Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.The following factors determine the working capital requirements of a firm --- 1.     Nature of the Industry 2.     Demand of Industry 3.     Cash requirements 4.     Nature of the Business 5.     Manufacturing time 6.     Volume of Sales 7.     Terms of Purchase and Sales 8.     Inventory Turnover 9.     Business Turnover 10. Business Cycle 11. Current Assets requirements 12. Production Cycle 13.     Credit control 14.     Inflation or Price level changes 15.     Profit planning and control 16.     Repayment ability 17.     Cash reserves 18.     Operation efficiency 19.     Change in Technology 20.     Firm’s finance and dividend policy 21.     Attitude towards Risk