State whether we require more or less working capital in the following cases: (3)i) A company manufacturing iron and steelii) A biscuit manufacturing company having high turnover of inventoryiii) A large-sized business enterprise making toysiv) A company manufacturing furniture against orders only.v) A company manufacturing fansvi) A company following strict credit pol
Question
State whether we require more or less working capital in the following cases: (3)i) A company manufacturing iron and steelii) A biscuit manufacturing company having high turnover of inventoryiii) A large-sized business enterprise making toysiv) A company manufacturing furniture against orders only.v) A company manufacturing fansvi) A company following strict credit pol
Solution
i) A company manufacturing iron and steel: More working capital is required due to the high cost of raw materials and long production cycle.
ii) A biscuit manufacturing company having high turnover of inventory: Less working capital is required as the high turnover rate means that inventory is quickly converted into cash.
iii) A large-sized business enterprise making toys: More working capital is required due to the high cost of production and potentially long lead times on manufacturing.
iv) A company manufacturing furniture against orders only: Less working capital is required as the company only produces goods when there is a confirmed order, reducing the need for inventory storage and management.
v) A company manufacturing fans: More working capital is required due to the high cost of raw materials and the potential for seasonal fluctuations in demand.
vi) A company following strict credit policy: Less working capital is required as the company is likely to have a shorter cash conversion cycle due to its strict credit policy.
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