## Determinants of Working Capital
Working capital requirements are not uniform across businesses. Several internal and external factors determine how much WC a firm needs.
### Two Core Concerns of WC Management
1. Maintaining adequate working capital — ensuring sufficient current assets are available
2. Financing working capital — deciding how to fund those current assets
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### Key Determinants
| Factor | Effect on WC Requirement |
|---|---|
| Need for Cash | Must maintain adequate cash for daily ops; excessive idle cash wastes return |
| Desired Inventory Level | Higher safety stock needs more WC; JIT and EOQ techniques help optimise |
| Receivables / Credit Policy | Liberal credit → more customers but more receivables → more WC tied up; managed via discounts and credit limits |
| Short-term Financing Options | Access to supplier credit, bank loans, and factoring reduces net WC required |
| Nature of Business | Cash-based businesses (e.g., restaurants) → low WC; inventory-heavy (e.g., pharmacies) → high WC |
| Market & Demand Conditions | High/predictable demand → faster inventory turnover → lower WC; uncertain/slow demand → more WC locked in stock |
| Technology & Manufacturing Policy | Continuous production builds large inventory (high WC); seasonal production creates temporary WC peaks |
| Operating Efficiency | Reduced wastage and better coordination → lower WC needed |
| Price Level Changes & Exchange Rates | Inflation or rising import costs → same physical quantity costs more ₹ → higher WC required |