Growth and Expansion
As a company grows, it is logical to expect that a larger amount of working capital is required. It is, of course, difficult to determine precisely the relationship between the growth on the volume of business of a company's and the increase in its working capital. The composition of working capital in a growing company also shifts with economic circumstances and corporate practices. Other things being equal, growth industries require more working capital than, those that are static. The critical fact, however, is that the need for increased working capital funds does not follow the growth in business activities but precedes it. Advance planning of working capital is, therefore, a continuing necessity for a growing concern. Or else, the company may have substantial earnings but little cash.