How are the components of the working capital requirement evolving?

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To  factor out the evolving amount of working capital needed for running a businesses is an extremely important as well as difficult task, However, it is extremely critical for any organization to estimate this figure so that it can operate smoothly and be fully functional.

There are several factors that need to be considered before arriving at a more or less accurate figure. The following are some (not all ) of those factors that determine the amount of liquid cash and assets required for any organization to operate smoothly:

1-  Nature of business:

A trading organization requires a large working capital, whereas  Industrial organizations may require lower working capital, i.e. basic and key industries, public utilities, etc. require low working capital because they have a steady demand and continuous cash-inflow to meet their current liabilities.

2- Size of the business unit:

The amount of working capital also depends directly upon the volume of business. The greater the size of a business unit, the larger will be the requirements of working capital.

3- Terms of purchase and terms of sale ( Or Credit Policies):

Use of trade credit may lead to lower working capital while cash purchases will demand larger working capital. Similarly, credit sales will require larger working capital while cash sales will require lower working capital.

4-Turnover of inventories:

If inventories are large and their turnover is slow, we shall require larger capital but if inventories are small and their turnover is quick, we shall require lower working capital.

5-Process of manufacture:

Long-running and more complex process of production requires larger working capital while simple, short period process of production requires lower working capital.

 6- Importance of labor ( Or Automation):

Capital intensive industries e.g. mechanized and automated industries generally require less working capital while labor intensive industries such as small scale and cottage industries require larger working capital.

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Consists of1. Permanent working capital:This type represents the minimum current assets that must be kept on a permanent basis for the continuation of operational activity for the project and then it can not be dispensed with as long as this kind established proceed with its main activity.2. Working capital variable:This represents the amount of additional types of current assets that appear needed in certain periods in order to meet some conditions (such as additional inventory required to meet the increased demand in periods of boom or the increase in the balance of accounts receivable as a result of seasonal demand periods)The former division depends on identifying the most appropriate sources of funding for the two types of working capital.Each facility operates in the economic field need to capital to fund operating assets, however, are getting all of these assets at the same time but are acquired over time so it can be called Total necessary to get the asset cumulative financial needs costs.