What are the Factors Affecting Working Capital Requirements? 500 words

There are different factors which are affecting the working capital requirement of the company and it is highly company specific because working capital will be different for different companies and it will depend upon the nature of the world the companies engaged into, and the ability of the company in able to repay with those working capital. Working capital are generally those capital which are required for day-to-day management of the company and these are mostly and funded by short-term sources of capital and these will be having a very high repayment obligation for the company as they will have to be repaid in shorter period of time.

Working capital is calculated after deduction of total current assets from the total current liability and this type of total current assets will be representing all such assets which will be requiring in the Shorter period of time and all such liability will be required in the shorter time as well so these current asset and liabilities will be reflecting the need of the company in able to have a total working capital.

Company when they are estimating at the net working capital should be looking at factors like company specific factors which will be including the ability of the company to repay this working capital and the current ratio of assets to the liability because when there would be a higher current asset in order to fulfill with the net working capital of the company, then the company should be trying to take a higher net working capital and then there would be an optimum generation of the cash for the company in the shorter period of time it will mean that the company also having an ability to repay their obligation in shorter period of time as they are highly liquid so this will not even impact the liquidity of the company and those companies which are making a very high rate of return should be looking for taking working capital as they will easily be able to fulfill with the repayment liability of the working capital

Companies will also look for determination of the macro environmental factors like interest rate risk and inflation risk which will reflect the challenges which are there in macro environment in order to repay those working capital so company should be looking for those factor in advance and prepare a healthy payment structure in order to borrow the amount of net working capital.