Factors determining the working capital

Answer 1

The factors that should be kept in mind before Assessing the working capital requirements of a firm are :- a. Nature of business b. Seasonality of operations c. Production policy d. Market conditions e. Conditions of supply.

Answer 2

Basically, working capital is composed of various items. Most of the time you got inventories and retained profits. According to the US GAAP (Generecally accepted accounting principles), the inventories must follow any appreciation (or depreciation) of the items in inventory. Let's say that you have a pencil in your company's inventory whose value is US$1,00. If from october 2008 to November 2008 the value of the pen would go from US$1,00 to US$1,20, your working capital would be affected in 20%. On the opposite, if the value had dropped to US$0,80, your working capital would have depreciated in 20%. But this is according one of the many accounting principles. On the other side, if you have money invested in any kind of product or fund, you have to adjust properly, reflecting its appreciation or depreciation. But in this case, other factors play an important role. Here you got to see inflation more directly, because it afeccts the net gain of a certain investment.

To sum it up, basically you got appreciation and (depreciation) of your inventories, inflation rate and net gain (loss) of the money invested.

Answer 3

1.nature of the business 2 character of the business 3 size of the business 4 seasonal variations 5 working capital cycle 6 rate of stock turnover 7credit policy 8 business cycle 9rate of growth of business 11 earning capacity 12 dividend policy 13 price level changes 14 other factors