12. (a) Sahil is the Finance Manager of 'Knitwear Ltd'. The company is engaged in the manufacturing of woolen clothes. The demand of he company's product is seasonal, whereas the production continues throughout the year. Due to the quality of its products, the company's business is spreading across the country. The company is operating at a large scale having its regional offices in Northern, Southern, Eastern and Western India. The performance of its each division is of very high level. For uninterrupted availability of raw materials, the company requires high stock levels. Not only this, to face the competition and to meet the urgent orders of the customers, the company also needs enough stock of finished goods. Considering. the above discussion, state five factors affecting working capital requirements of Knitwear Ltd'.
Solution:
Five factors affecting working capital requirements of Knitwear Ltd' are as follow:
1. Nature of business - Manufacturing business need more working capital in comparison to trading business, because manufacturing business need to convert raw material into finished goods before any sales begin thus they need more working capital.
2. Seasonal factor - Knitwear Ltd is in seasonal business needs more working capital when there season is at peak whereas in lean season they need less working capital.
3. Scale of operation - Knitwear ltd operate on large scale having its regional offices in all regions requires more working capital.
4. Level of competition - Because of competition Knitwear Ltd needs stock of finished goods that requires more working capital.
5. Growth potential - As Knitwear Ltd quality of product is good and showing growth they need more working capital to meet higher production and sales targets.
Five factors affecting working capital requirements of Knitwear Ltd' are as follow:
1. Nature of business - Manufacturing business need more working capital in comparison to trading business, because manufacturing business need to convert raw material into finished goods before any sales begin thus they need more working capital.
2. Seasonal factor - Knitwear Ltd is in seasonal business needs more working capital when there season is at peak whereas in lean season they need less working capital.
3. Scale of operation - Knitwear ltd operate on large scale having its regional offices in all regions requires more working capital.
4. Level of competition - Because of competition Knitwear Ltd needs stock of finished goods that requires more working capital.
5. Growth potential - As Knitwear Ltd quality of product is good and showing growth they need more working capital to meet higher production and sales targets.