The factors affecting the requirement of working capital are:
(i) Nature of business : The working capital requirement is affected by the nature of business. A trading concern needs less working capital as sales are made quickly on receipt of material. Wholesalers and manufacturers require more working capital as they have to sell on credit and maintain a huge inventory. Services also have low working capital requirement as they sell on cash basis and do not need much inventory.
(ii) Scale of operations : The size of the concern has a direct relation with the working capital requirements. Big enterprises need higher working capital for investment in current assets.
(iii) Business cycle fluctuation : During boom period the market is flourishing and hence, more working capital is required to meet the increasing demand and sales.
(iv) Technique of production : If a company is using labour intensive then company will have to maintain more working capital to make payments to the labour.
(v) Growth prospects : Firms planning to expand their activities will require more amount of working capital as for expansion they need to increase scale of production.
(vi) Inflation : If there is increase or rise in price then the price of raw materials and cost of labour will rise. It will result in an increase in working capital requirement.
