Question

Explain the following factors affecting the working capital requirements of a company:

(a) Level of competition

(b) Inflation

Hint:

Higher competition requires more stock and credit flexibility, while inflation increases working capital due to rising costs.

Answer 1

(a) Increased competition elevates working capital demands by necessitating higher finished goods inventory to satisfy immediate customer needs and offering extended credit terms to retain clientele.

(b) Inflation escalates the cost of production inputs, thereby augmenting a company's working capital needs.