State any four factors affecting working capital requirement.

Answer: The working capital requirement of a company depends on:

1. Nature of business: Trading and public utility concerns need less working capital (quick or cash sales), while manufacturing concerns need more to hold raw materials, work-in-progress and finished goods.
2. Scale of operations: A large-scale business needs more working capital for stock, debtors and expenses than a small one.
3. Length of production cycle: The longer the time taken to convert raw materials into finished goods, the more funds are blocked and the higher the working capital needed.
4. Credit policy: Liberal credit to customers increases debtors and hence working capital; credit received from suppliers reduces it.
5. Seasonal nature: Businesses with seasonal demand or seasonal raw materials need more working capital in the peak season.
6. Business cycle: During a boom more working capital is required; during depression less.
7. Growth and expansion: A growing company needs more working capital to support higher sales.
8. Operating efficiency: Efficient management of stock, debtors and cash reduces the working capital requirement.