What are the factors influencing the magnitude of a firm’s working capital needs? (500 words)

- Business size: Big companies have to maintain higher amounts of capital due to their larger operational volume compared to smaller firms. The figurate of the stock, accounts receivables and payables are bigger too.

- Nature of business: Corporates with manufacturing operations that encompass a longer cycle time and those offering credit sales terms generally have a high account receivables and inventory investment. Companies like automobiles and fast-moving consumer goods (FMCG) are the best place examples.

- Production cycle: Proper production cycles with more inventory investments, the longer they are endure. Importantly, the enterprise in question will be forced to have an increase in account receivables because of the longer credit.

- Credit policies: Lax credit policies for customers would compel higher allowance for receivables (payable amounts due). With good credit terms from suppliers, the level of required working capital is also significantly reduced.

- Growth rate: A dramatically expanding businesses must needs cash money to finance augmented sales that is inevitably accompanied by creditors as well as inventory. As high sales cause high working capital.

- Seasonality of operations: Seasons of sales peak and low, e.g. of toys, travel etc, demand high level of working capital in these businesses to manage (inventories and receivables) across (peak and non-peak) seasons.

- Industry characteristics: Working capital needs are a major factor determining the liquidity state among the industries due to the period of cash conversion. For example, what do we compare between fast food and automobile industries?