Neelabh is engaged in ‘transport business’ and transports fruits and vegetables to different states. Stating the reason in support of your answer, identify the working capital requirements of Neelabh. Neelabh also wants to expand and diversify his transport business, explain any two factors that will affect his fixed capital requirements.
or
Pranav is engaged in transport business. Identify the working capital requirements of Pranav stating the reason in support of your answer. Pranav also wants to expand and diversify his transport business. Explain any two factors that will affect his fixed capital requirements.
In the transportation business, lower amount of working capital is required as it is a service industry. Working capital requirement of Neelabh/Pranav would include, payment of salaries, fuel charges, maintenance of vehicles, etc.
Factors Affecting the Fixed Capital Requirements are:
(i) Growth prospects Businessman wants to expand his business, in such situation company requires higher investment to meet the anticipated demand in future. Thus, the requirement of fixed capital will be higher.
(ii) Diversification If the businessman diversifies his business, this means larger amount of fixed capital is required.