The factors which affect the working capital requirements of a company are :
(i) Fluctuations in business cycle : During a boom period, the market flourishes and thereby there is higher sale, higher production, higher stock and debtors. Thus, during this period the need for working capital by a company increases. On the other hand during the period of depression, there is low demand, lesser production and sale, etc. Therefore; the requirement for working capital is also decreases.
(ii) Inflation : A rise in the rate of inflation implies that the prices of raw materials, labour, etc., increases. This require large amount of funds to maintain even the existing volume of production and sales. This in turn increases the requirement of working capital. On the other hand, a low rate of inflation implies less requirement of working capital for a business.
(iii) Extent of availability of raw material : If the raw materials required by the company are. such that they are easily available, then the firm need not to maintain a large stock of inventories of raw material. In such situations, the company requires less working capital. On the other hand, if the raw materials are not easily available or their supply is not smooth, then the company must maintain a huge stock of raw material to ensure uninterrupted operations, thereby requiring a large working capital.