Factors influencing working capital requirements, Managerial Accounting

The working capital needs of a firm are influenced by many factors. The important ones are as follows:

Nature of business: The working capital necessity of a firm is closely linked to the nature of its business. In common businesses along with short operating cycles will need lesser amount of working capital as compared to businesses along with longer operating cycles. The firms involved in manufacturing and trading will necessitate more working capital as huge amount of funds are locked in receivables and inventories. In common service and utility companies as like water, electricity undertakings, supply, and telecom companies will need lesser amount of working capital as compared to trading and manufacturing links. Table no.2 illustrates the relative proportion of investment in current assets and fixed assets of specific industries.

Table no: Proportion of current assets and fixed assets

 

Current Assets %

 

Fixed Assets %

 

Industries

10-20

20-30

80-90

70-80

Hotels and restaurants Electricity generation and Distribution

30-40

40-50

60-70

50-60

Aluminum and Shipping Iron and Steel, Basic industries, Chemicals

50-60

60-70

40-50

30-40

Tea plantation

Cotton textiles, Sugar

70-80

80-90

20-30

10-20

Edible oils, Tobacco

Trading, Construction

Business Cycle: throughout economic boom there is increased production that need higher amount of working capital, but it is partly offset through decreased operating cycle. Again there would be required for increase working capital at the time of economic downturn, as huge amount of funds would be locked within inventories and receivables.

Posted Date: 4/9/2013 3:00:07 AM | Location : United States







Related Discussions:- Factors influencing working capital requirements, Assignment Help, Ask Question on Factors influencing working capital requirements, Get Answer, Expert's Help, Factors influencing working capital requirements Discussions

Write discussion on Factors influencing working capital requirements
Your posts are moderated
Related Questions
Compute the value of share of a company? A company paid dividend amounting to Rs. 0.75 each share during the last year. The company is supposed to pay Rs. 2.00 per share throug

Once the credit information is accumulated the subsequent step is to analyze the gathered information and isolate those matters that may need further investigation. The factors whi

Explain:- Q.1 As a potential investor, what is the problem with different countries having different accounting standards? As the president of a multinational company, what is

Account analysis (Inspection of accounts) method: This method requires that departmental managers and the accountant inspect each item of expenditure within the accounts for s

What value can management derive from a Balance Scorecard? How does the management accountant contribute?

how do i calculate the actuarial gains or losses on the present value of plan obligations?

Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o

a annual sales are 585000 unit. the purchase price per unit is $2. the carrying cost is 26% of purchase price of goods safty stock is 100000 units on hand two weeks are required fo

Accounting Profit is a company's sum total earnings, computed according to Generally Accepted Accounting Principles (GAAP), and involves the explicit costs of operating business, l

Explain Sales budget A sales budget is an estimate of expected sale during a budget period. A sales budget is known as a nerve center or backbone of the enterprise. The degree