In business you require finance for purchase of raw material, payment of wages and salaries, rent, fuel, electricity and water, repairs and maintenance of machinery, advertising, etc. Requirements of finance for these purposes arise at short intervals. In course of business activities, it is also necessary ' to hold stocks of materials, spare parts, and finished goods. This involves investment in short-term assets or current assets in the form of stocks of raw materials, spare parts, stores, finished goods, etc. Besides, sale of goods on credit leads to the holding of debtors balances and bills receivable, which may also be regarded as , current assets.

Working capital requirements vary along manufacturing industries because of differences in the time involved in the production .process i.e., time that passes 'between the purchase of raw materials and the production of finished goods. Longer the processing time, the more is the amount of working capital required.  or example, heavy engineering industry needs relatively more working capital than a rice mill or .a cotton spinning mill or a steel rolling mill.

Another factor that determines the amount of working capital relates to the terms of credit allowed to customers.

The amount of working capital required will 'naturally be more if the credit period is longer and credit facilities are extended to all customers.