Manish is engaged in the business of garments manufacturing. Generally, he used to sell his garments in Delhi. Identify the working capital requirements of Manish. Further, Manish wants to expand and diversify into warehousing business. Explain any two factors that will affect his fixed capital requirements.
Manish is engaged in the business of garments manufacturing. Generally, he used to sell his garments in Delhi. Identify the working capital requirements of Manish. Further, Manish wants to expand and diversify into warehousing business. Explain any two factors that will affect his fixed capital requirements.
As working capital focuses on short-term obligations of a business, Manish's working capital requirements for his garments manufacturing will be :
(i) To reduce the time taken from inventories of garments to sending them in the markets of Delhi.
(ii) To quickly convert all inventories into cash from sales and generate accounts receivables more than accounts payable from the markets of Delhi.
(iii) To pay-off, short-term obligations and generate more cash for future short-term operations.
If Manish wishes to expand and diversify into warehousing business, the two factors that will affect his fixed capital requirements are :
(a) Return on Investment (ROI) : ROI determines the extent of earnings made from capital employed in warehousing. Accordingly, Manish should be able to generate more profits than the overall debt of his business. This factor also shows Manish's ability to manage his debt.
(b) Cash flow position: Manish needs to maintain liquidity for the warehousing business as cash reserves are usually low when inventories are high in warehousing.
As working capital focuses on short-term obligations of a business, Manish's working capital requirements for his garments manufacturing will be :
(i) To reduce the time taken from inventories of garments to sending them in the markets of Delhi.
(ii) To quickly convert all inventories into cash from sales and generate accounts receivables more than accounts payable from the markets of Delhi.
(iii) To pay-off, short-term obligations and generate more cash for future short-term operations.
If Manish wishes to expand and diversify into warehousing business, the two factors that will affect his fixed capital requirements are :
(a) Return on Investment (ROI) : ROI determines the extent of earnings made from capital employed in warehousing. Accordingly, Manish should be able to generate more profits than the overall debt of his business. This factor also shows Manish's ability to manage his debt.
(b) Cash flow position: Manish needs to maintain liquidity for the warehousing business as cash reserves are usually low when inventories are high in warehousing.
