Factors affecting the requirements of Working Capital of a company:
(i) Nature of Business: The basic nature of a business enterprise influences the amount of working capital required by it. For e.g., A trading organisation needs a lower amount of working capital as compared to a manufacturing organisation.
(ii) Scale of Operations: An organisation which is operating on large scale will require more inventory as its working capital requirement will be more, compared to a small organisation. Working capital and scale of operations are directly related to each other.
(iii) Business Cycle: When there is a expansion (boom) in the economy, more production will be undertaken and so more working capital will be required during that time as compared to depression in the economy.
(iv) Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished goods. Working capital requirements will be higher in firms with longer processing cycle and lower in firms with shorter processing cycle.