General Nature of Business Homework Help

General Nature of Business

The working capital requirements of an enterprise are basically related to the conduct of business. Enterprises fall into some broad categories depending on the nature of their business. For instance public utilities have certain features which have a bearing on their working capital needs. The relevant features are: (i) the cash nature of business, that is, cash sale, and (ii) sale of services rather than commodities. In view of these features, they do not maintain big inventories and therefore, probably the least requirement of working capital. At the other extreme are trading financial enterprises. The nature of their business is such that they have to maintain a sufficient amount of cash, inventories and book debts. They have necessarily to invest proportionately amounts in working capital. The manufacturing enterprises fall, in a sense, between these extremes. The industrial concerns require fairly large amounts of working capital through it from industry to industry depending on their asset structure. The proportion of current a total assets measures the relative requirements of working capital of various industries. As data in respect of companies in India confirm the wide variations in the use of working ca different enterprises. The percentage of current assets to total assets was found to be the lowest in hotels, restaurants and eating houses (10-20 per cent range), while in electricity general supply it was in the range of 20-30 per cent. The enterprises in the tobacco, construct trading groups had, as is to be expected, the highest component of working capital (80-90 range). The other industrial groups fall between these limits though there are very wide inter industry variations.

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