2023 2024 MBA - Www.IGNOU.Ac.In MBA Assignment

Here is the MBA Assignment of the IGNOU:

Determinants of Working Capital:
- Nature of Business/Industry;
-Size of Business/Scale of Operations;
-Growth prospects
- Business Cycle;
-Manufacturing Cycle;
-Operating Cycle &
-Rapidity of Turnover;
- Operating Efficiency;
-Profit Margin;
-Profit Appropriation
- Depreciation Policy;
-Taxation Policy;
-Dividend Policy and
-Government Regulations

1. Nature of Business
This is one of the main factors. Usually in trading businesses the working capital needs are higher as most of their investment is concentrated in stock or inventory. Manufacturing businesses also need a good amount of working capital to meet their production requirements.
2. Size of Business
Size of business is another influencing factor. As size increases, the working capital requirement is also more and vice versa.
3. Credit Terms / Credit Policy
Credit terms greatly influence working capital needs. If terms are:
i. buy on credit and sell by cash, working capital is lower
ii. buy on credit and sell on credit, working capital is medium
Prevailing trade practices and changing economic condition do generally exert greater influence on the credit policy of concern.
e. A liberal credit policy if adopted more trade debtors would result and when the same is tightened, size of debtors gets slim.
4. Seasonality
. Seasonality of Production
Agriculture and food processing and preservation industries have a seasonal production. During seasons, when production activities are in their peak, working capital need is high. it pays to buy in bulk during the seasons. Hence the high level of working capital needed when season exists for raw materials.
5. Trade Cycle
Trade cycle refers to the periodic turns in business opportunities from extremely peak levels, via a slackening to extremely tough levels and from there, via a recovery phase to peak levels, thus completing a business cycle. There are 4 phases of trade cycle.
a. Boom Period.
a. Depression period
b. Recession period –
d. Recovery period
6. Inflation
Under inflationary conditions generally working capital increases, since with rising prices demand reduces resulting in stock pile-up and consequent increase in working capital.
7. Production cycle
The time lapse between feeding of raw material into the machine and obtaining the finished goods out from the machine is what is described as the length of manufacturing process. It is otherwise known as conversion time.
8. System of Production process
If capital intensive, high-technology automated system is adopted for production, more investment in fixed assets and less investment in current assets are involved
9. Growth and expansion plans
Growth and expansion industries need more working capital than those that are static.

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