WORKING CAPITAL ASSIGNMENT Case Solution & Answer

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WORKING CAPITAL ASSIGNMENT Case Solution

Moreover, the impact of the market structures also has a significant effect on the working capital asset decisions of the managers.If the firm operating in an economy is faced with less competition or is in a monopoly position, then the managers of the company would require less working capital assets and they would be going for a restrictive working capital policy because they would be able to dictate the terms according to their own needs and requirements (Deloof 2003). On the other hand, if the firm in the economy is competitive then the managers would be adopting a liberal credit policy for managing their working capital assets so that goods can be supplied to the customers always on time. The company will also have to maintain high levels of inventories and as a result higher level of working capital would be required.

Effect of Firm Size and Market Structure on Funding Decisions

Â The firmsâ€™ sizes also tend to have an impact upon the funding decisions of the finance manages of the companies in order to finance their working capital requirements. If the size of the company is small in terms of its dollar sales, then the finance managers would be seeking for short term financing alternatives. This would include funding the working capital needs of the company through trade credits, bank overdrafts or cash credits, discount of bills, letter of credit, commercial paper and working capital loans. On the other hand, if the size of the firm is large then it would most probably seek for more risky sources of finances in order to fund the working capital requirements. This is certainly going to include the equity capital issue, loans and also factoring of all the accounts payable of the company (Majmumdar 1997).

Â Finally, the market structures in which the firm is operating also tend to have an impact upon the funding decisions of the finance managers of the company. If a company is faced with less competition in the market or holds a monopoly position, then it would be going for more risky modes of financing in order to fund the working capital requirements of the company. This is because the company would be in a strong position in the market to dictate the terms according to its needs and requirements (Sarkaria and Shergill 2001). Moreover, if the firm is operating in a perfectly competitive market, then it would seek for low risk and short term financing options for funding its working capital requirement. This is because these companies usually face difficulties to access finance to run its day to day operations. Therefore, the managers seek for low risk and short term financing alternatives………………….

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