Question

Which of the following will require higher working capital ?

• A. Trading organisations
• B. Short processing cycles
• C. High level of competition
• D. Strict credit policy towards debtors

Hint:

If competition is high, you need to "buffer" your business with more inventory and more credit to stay ahead, both of which use up more cash.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Working Capital is the funds required for day-to-day operations. Factors affecting it include the nature of business, scale of operations, and market conditions.
Step 2: Detailed Explanation:
1. Trading: Usually needs less working capital than manufacturing.
2. Short cycles: Needs less capital because stock is converted to cash quickly.
3. Strict credit: Needs less capital because cash is collected quickly.
4. High competition: Requires more working capital because the firm may need to maintain higher stock levels to meet immediate demand or offer liberal credit terms to attract customers.
Step 3: Final Answer:
The correct option is (c).