Question

(a) Explain the following factors affecting the working capital requirement of a company :
(i) Level of competition
(ii) Production cycle
(iii) Scale of operations

Hint:

More time, size, or rivalry? Think higher working capital!

Answer 1

(i) Market Competition: Firms in intense markets may need extra working capital for enhanced customer service, larger stock levels, or extended credit terms to remain competitive.
(ii) Production Duration: The period to transform raw materials into finished products influences working capital. Extended production cycles immobilize more funds in inventory, thus increasing working capital demands.
(iii) Operational Size: Large enterprises require more working capital for managing raw materials, production processes, and distribution. Larger companies generally hold more inventory and incur higher operating expenses. 
Conclusion: Increased competition, extended production timelines, and significant operational scale lead to greater working capital requirements.