Level of working capital determined factors
The factors to determine the level of working capital:
1. The nature of the business
2. Preference for liquidity or profitability:
-profitability, low investment
-liquidity, high investment
3. The overall level of activity of the business. As output increases, AR, inventory, etc, all tend to raise.
4. The company's credit policy
the tighter the company's policy the lower the level of receivables.
5. Uncertainty in supplier deliveries
Uncertainty would mean that extra inventories need to be carried in order to cover fluctuations:
6. The length of the operating cycle
the longer it takes to convert materials into finished goods into cash the grater the investment in working capital.
7. The credit policy of suppliers
the less credit the company allowed to take, the lower the level of payables and the higher the net investment in working capital.
Back：Financial management environment-Macroeconomic Policy
Next：Payback period
1. The nature of the business
2. Preference for liquidity or profitability:
-profitability, low investment
-liquidity, high investment
3. The overall level of activity of the business. As output increases, AR, inventory, etc, all tend to raise.
4. The company's credit policy
the tighter the company's policy the lower the level of receivables.
5. Uncertainty in supplier deliveries
Uncertainty would mean that extra inventories need to be carried in order to cover fluctuations:
6. The length of the operating cycle
the longer it takes to convert materials into finished goods into cash the grater the investment in working capital.
7. The credit policy of suppliers
the less credit the company allowed to take, the lower the level of payables and the higher the net investment in working capital.
Back：Financial management environment-Macroeconomic Policy
Next：Payback period
