Yogesh, a businessman is venturing into a garment manufacturing unit

Yogesh, a businessman is venturing into a garment manufacturing unit. He has to determine the fixed capital and working capital requirement for his business.
(i) State two factors each for determining fixed capital requirement and working capital requirement.
(ii) What values should be keep in mind.

(i) Two factors of fixed capital:

  1. Nature of Business
    The type of business has a bearing upon the fixed capital requirements, e.g. a trading concern needs lower investment in fixed assets compared with a manufacturing organisation, since it does not require to purchase plant and machinery, etc.
  2. Scale of Operations
    A larger organisation operating at a larger scale needs higher investment in fixed assets as compared to a small organisation.
    Two factors of working capital:
  3. Nature of Business
    The basic nature of a business influences the amount of working capital. A trading organisation and a service industry firm usually needs a smaller amount of working capital as compared to a manufacturing organisation. -
  4. Scale of Operations
    Organisations which operate on a large scale, their quantum of inventory and debtors required is generally high. Such organisations, therefore, require large amount of working capital as compared to the organisations which operate on a lower scale.
    (ii) Values to be kept in mind are
    (a) Commitment (in most cases)
    (b) Responsibility
    © Decisiveness