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BUSINESS  SUDIES 236 4. Seasonal Factors: Most business degrees of efficiency. For example, have some seasonality in their a firm managing its raw materials operations. In peak season, because of efficiently may be able to manage with higher level of activity, larger amount a smaller balance. This is reflected of working capital is required. As in a higher inventory turnover ratio. against this, the level of activity as Similarly, a better debtors turnover well as the requirement for working ratio may be achieved reducing capital will be lower during the the amount tied up in receivables. lean season. Better sales effort may reduce the 5. Production Cycle: Production average time for which finished goods inventory is held. Such efficiencies cycle is the time span between the receipt of raw material and their may reduce the level of raw materials, conversion into finished goods. Some finished goods and debtors resulting businesses have a longer production in lower requirement of working capital. cycle while some have a shorter one. Duration and the length of 9. Availability of Raw Material: If production cycle, affects the amount the raw materials and other required of funds required for raw materials materials are available freely and and expenses. Consequently, working continuously, lower stock levels may capital requirement is higher in firms suffice. If, however, raw materials do with longer processing cycle and lower not have a record of un-interrupted in firms with shorter processing cycle. availability, higher stock levels may 6. Credit Allowed: Different firms be required. In addition, the time lag allow different credit terms to their between the placement of order and customers. These depend upon the the actual receipt of the materials (also level of competition that a firm faces called lead time) is also relevant. Larger as well as the credit worthiness of the lead time, larger the quantity of their clientele. A liberal credit policymaterial to be stored and larger shall results in higher amount of debtors, be the amount of working capital increasing the requirement of working required. capital. 10. Growth Prospects: If the growth 7. Credit Availed: Just as a firm potential of a concern is perceived to allows credit to its customers it also be higher, it will require larger amount may get credit from its suppliers. of working capital so that it is able To the extent it avails the credit to meet higher production and sales on purchases, the working capital target whenever required. requirement is reduced. 11. Level of Competition: Higher level 8. Operating Efficiency: Firms of competitiveness may necessitate manage their operations with varied larger stocks of finished goods to Reprint 2026-27