There are no set rules or formulate to determine the working capital requirements of a firm. The corporate management has to consider the various factors in making decisions regarding working capital balances. An appraisal of these would provide guidance to management in estimating prospective needs. These are called as determinants of working capital.
The firm must estimate its working capital very accurately because excessive working capital results in unnecessary accumulation of inventory and wastage of capital whereas shortage of working capital affects the smooth flow of operating cycle and business fails to meet its commitment.
In this section let us examine the various determinants of working capital.… Read the rest