Length of operating or working capital cycle, Managerial Accounting

Change of Technology: Changes in technology commonly leads to improvements in the efficient processing of raw material, reduce in wastages, more speedy production and higher productivity. All these enhancements lead to reduction in investment in inventories that in turn causes reduction in working capital need. If changed technology outcomes in shorter manufacturing method the lesser would be the needs of working capital.

Length of Operating or Working Capital Cycle: As described in the section dealing along with operating cycle notion of working capital the amount of working capital will based upon the duration of operating cycle. The operating cycle in turn is based on several other variables as debtor collection period and duration of manufacturing process and so on.

Firm's credit policy: The credit policy of the firm also impacts working capital requirements. A firm following liberal credit policy will need more amount of working capital, as a huge amount of funds would be blocked in debtors.

Posted Date: 4/9/2013 3:01:40 AM | Location : United States

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