Factors affecting the requirements of working capital are:
(i) Nature of business: An organisation that deals in services or trading will not require much of working capital. This is because such organisations involve small operating cycle and there is no processing done. In contrast to this, a manufacturing firm involves large operating cycle and the raw materials need to be converted into finished goods before the final sale transaction takes place. Thereby, such firms require large amount of working capital.
(ii) Scale of operations: If a firm operates on a large scale then it requires more working capital. This is because such firms would need to maintain high stock of inventory and debtors. In contrast to this, if the scale of operation is small, the requirement of the working capital will be less.
(iii) Seasonal factors: During the periods of high sale, there is higher production, higher stock and more debtors. Thus, during this period the need for working capital increases. As against this, in seasons of low sale, there is less production and inventories. Thus, the working capital requirement reduces.
(iv) Production cycle: If a firm has a longer production cycle or there is a long time gap between the receipt of raw materials and their conversion into finished goods, then there will be a high requirement of working capital due to inventories and related expenses. On the other hand, if the production cycle is short, then the requirement of working capital will be less.