A business who wants to start a manufacturing concern approaches you to suggest him whether following manufacturing concerns would require large or small working capital
(a) Bread (b) Sugar (c) Coolers.
A business who wants to start a manufacturing concern approaches you to suggest him whether following manufacturing concerns would require large or small working capital
(a) Bread (b) Sugar (c) Coolers.
Working capital is the difference between current assets and current liabilities and it implies the extent of cash available to satisfy short-term obligations generated from current liabilities. Working capital depends upon the time taken by a company to convert their inventories under current assets into cash that can be utilised to pay off short-term debt obligations. Accordingly, the concerned business in the case study would require :
(i) Bread: It is a perishable good and cannot be stored for a long time. The production cycle of bread is less and bread production requires a small-scale of operations. Thus, working capital for bread is small as bread can be quickly converted into cash.
(ii) Sugar: It is also a perishable good but can be stored in a dry place. The production cycle is more than bread and the scale of business can be medium to large. Sugarcane, the math raw material for sugar processing is a seasonal crop and the production cycle would require a large working capital than bread.
(iii) Cooler: It is a durable good and can be stored but the production process is highly capital intensive in comparison to bread and sugar production. The scale of operations is very large, raw materials and components are also capital-intensive and not easily available. The demand for coolers is also seasonal as demand is high usually during summers. Thus, working capital for coolers is very large in comparison to bread and sugar production.
Working capital is the difference between current assets and current liabilities and it implies the extent of cash available to satisfy short-term obligations generated from current liabilities. Working capital depends upon the time taken by a company to convert their inventories under current assets into cash that can be utilised to pay off short-term debt obligations. Accordingly, the concerned business in the case study would require :
(i) Bread: It is a perishable good and cannot be stored for a long time. The production cycle of bread is less and bread production requires a small-scale of operations. Thus, working capital for bread is small as bread can be quickly converted into cash.
(ii) Sugar: It is also a perishable good but can be stored in a dry place. The production cycle is more than bread and the scale of business can be medium to large. Sugarcane, the math raw material for sugar processing is a seasonal crop and the production cycle would require a large working capital than bread.
(iii) Cooler: It is a durable good and can be stored but the production process is highly capital intensive in comparison to bread and sugar production. The scale of operations is very large, raw materials and components are also capital-intensive and not easily available. The demand for coolers is also seasonal as demand is high usually during summers. Thus, working capital for coolers is very large in comparison to bread and sugar production.
