Following factors determine the working capital requirements:
1. Turn over: Higher is the sales turn over, lower is the requirement of working capital. The revenue is obtained from the current assets. On the other hand, lower is the sales turn over; higher is the requirement of working capital.
2. Tax liability: Increase in the tax liability increases the requirement of working capital and decrease in the tax liability of the enterprise decreases the need of working capital.
3. Size of enterprise: Larger is the size of enterprise; larger is the requirement of working capital. On the contrary, smaller is the size of enterprise; smaller is the requirement of working capital.
4. Nature of the enterprise: Requirement of working capital is different type of enterprises. Restaurants, hotels, etc. have less working capital requirements due to cash sales. Enterprise producing heavy machines needs more working capital, as their operating cycle is longer.
5. Operating cycle: Longer is the length of operating cycle larger is the requirement of working capital. This is due to the fact that more money is needed for making stocks, purchasing raw materials, etc.
6. Stock of inventory: If the enterprise prefers to make a larger stock of finished, semifinished goods and raw materials, the requirement of working capital also matters. On the other hand, lesser is the stock of such materials, lesser is the requirement of working capital.
