The working capital requirements of a corporate differ from company to company. There are no rules or formulas to determine the working capital requirements of a firm. The management has to consider a number of factors to determine the level of working capital. The following are some important factors:

Nature & Size of Business

The working capital of a firm basically depends upon the nature of its business. Trading & financial firms generally have low investment in fixed assets, but require a large investment in working capital. In contrary to this, public utilities have limited need for working capital and have to invest abundantly in fixed assets. Their working capital requirements are nominal because they have cash sales only and they supply services, not products.

The size of business also has an important impact on its working capital needs. Size may be measured in terms of the scale of operations. A firm with larger scale operations will need more working capital than a small firm.

Manufacturing Cycle

The manufacturing cycle starts with the purchase of raw materials and is completed with the production of finished goods. If the manufacturing cycle involves a longer period the need for working capital will be more, because an extended manufacturing time span means a larger tie-up of funds in inventories.

Seasonal Variation

Seasonal and cyclical fluctuations in demand for a product affect the working capital requirement considerably, especially the temporary working capital requirements of the firm. An upward swing in the economy leads to increased sales, resulting in an increase in the firm's investment in inventory and receivables or book debts & vice versa.

Production Policy

If a firm follows steady production policy, even when demand is seasonal, inventory will accumulate during off-season periods and there will be higher inventory costs & risks. Firms whose physical facilities can be utilized for manufacturing a variety of products can have the advantage of diversified activities. Such firms manufacture their main products during the season and other products during off-season. Thus, production policies may differ from firm to firm. Accordingly, the need for working capital will also vary.

Turnover of Circulating Capital

The speed with which the operating cycle completes its round plays a decisive role in influencing the working capital needs.

Credit Policy

The credit policy of the firm affects the size of working capital by influencing the level of book debts. A long collection period will generally mean tying of larger funds in book debts.

Growth & Expansion Activities

The working capital need increases with the growth & expansion of a company. Although, is difficult to determine the relationship between the growth in the volume of business & the growth in the working capital of a business, yet it may be concluded that for normal rate of expansion in the volume of business, one can retain profits in business for providing working capital, fast growing need more working capital.

Operating Efficiency

Operating efficiency means optimum utilization of resources. The firm can minimize its need for working capital by efficiently controlling its operating costs.

Price Level Changes

Generally, rising prices requires a higher investment in working capital. With increasing prices the same levels of current assets need enhanced investment. The effects of increasing price level may, however, be felt differently by differently firms due to variations in individual prices. It is possible that some companies may not be affected by the rising prices, whereas others may be badly hit.

Other Factors

Some other factors like management ability, import policy, asset structure, banking facilities, etc., also influence the requirements of working capital.