1. Nature of Business: The requirements of working are very limited in public utility undertakings such as electricity, water supply, and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand, the trading and financial firms require less investment in fixed assets but have to invest large amt. of working capital along with fixed investments.
  2. Size of the Business: Greater the size of the business, the greater is the requirement of working capital.
  3. Production Policy: If the policy is to keep production steady by accumulating inventories it will require higher working capital.
  4. Length of Production Cycle: The longer the manufacturing time the raw material and other supplies have to be carried for a long in the process with a progressive increment of labor and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.
  5. Seasonal Variations:  Generally, during the busy season, a firm requires larger working capital than in slack season.
  6. Working Capital Cycle: The speed with which the working cycle completes one cycle determines the requirements of working capital. The longer the cycle larger is the requirement of working capital.
  7. Rate of Stock Turnover: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need a lower amt. of working capital as compared to a firm having a low rate of turnover.
  8. Credit Policy: A concern that purchases its requirements on credit and sells its product/services on cash requires lesser amt. of working capital and vice-versa.
  9. Business Cycle: In the period of boom, when the business is prosperous, there is a need for a larger amt. of working capital due to a rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in times of depression, the business contracts, sales decline, difficulties are faced in a collection from the debtor and the firm may have a large amt. of working capital.
  10. Rate of Growth of Business: In faster-growing concern, we shall require large amt. of working capital.
  11. Earning Capacity and Dividend Policy: Some firms have more earning capacity than others due to the quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains a larger part of its profits and does not pay so high a rate of a cash dividend.
  12. Price Level Changes: Changes in the price level also affect the working capital requirements. Generally, a rise in prices leads to an increase in working capital.

Others FACTORS: These are:

  • Operating efficiency.
  • Management ability.
  • Irregularities of supply.
  • Import policy.
  • Asset structure.
  • Importance of labor.
  • Banking facilities, etc.

Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. Working Capital Management Policies of a firm have a great on its probability, liquidity, and structural health of the organization. So working capital management is three dimensional in nature as

  • It concerned with the formulation of policies with regard to profitability, liquidity, and risk.
  • It is concerned with the decision about the composition and level of current assets.
  • It is concerned with the decision about the composition and level of current liabilities.