Policy Changes

The second major cause of changes in the level of working capital is because of policy changes initiated by the management. There is a wide choice in the matter of current assets policy. The term current asset policy may be defined as the relationship between current assets and sales volume. A firm following a conservative policy in this respect having a very high level of current assets in relation to sales may deliberately option for a less conservative policy and vice-versa. These conscious managerial decisions certainly have an impact on the level of working capital.

Technological Changes

Finally, technological changes can cause significant changes in the level of working capital. If a new process emerges as a result of technological developments, which shortens the operating cycle, it reduces the need for working capital and vice-versa.

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