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Question:

Why is the working capital management important, and what factors affect it?

Answer:

  1. Working capital management is crucial because it ensures that a company has sufficient liquidity to meet its short-term obligations while maintaining operational efficiency. Proper working capital management helps avoid liquidity crises, reduces borrowing costs, and enhances profitability. Key factors affecting working capital are:
    • Nature of business: Manufacturing companies need more working capital than service-oriented companies due to inventory requirements.
    • Operating cycle: A longer operating cycle necessitates more working capital as more funds are tied up in inventory and receivables.
    • Credit policy: A lenient credit policy increases the working capital needs due to the delay in receiving cash from customers.
    • Business growth: Expanding businesses need more working capital to support increased production and sales.
    • Seasonal factors: Companies with seasonal demand require additional working capital during peak seasons to manage production and inventory.


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  • 4 months ago

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  • Answered by Ekta Mehta
  • 4 months ago

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  • Answered by Ekta Mehta
  • 4 months ago

Taking Screenshots on your Samsung Galaxy M31s is very easy and quick.

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