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Business Studies · 2025 · 6 marks
CBSE 2025 · Region 7 · Set 1 · Q33
(a) Explain the following factors affecting requirements of working capital of a company: (i) Nature of business (ii) Inflation (iii) Seasonal…
(a)
Explain the following factors affecting requirements of
working capital of a company:
(i)
Nature of business
(ii)
Inflation
(iii)
Seasonal factors
(iv)
Growth prospects
OR
(b)
Explain the following factors affecting dividend decisions of a
company:
(i)
Stability of dividend
(ii)
Shareholders' preference
(iii)
Access to capital market
(iv)
Legal constraints
Marking-scheme solution
Factors affecting requirements of working capital of a
company :
(i)
Nature of business:
• A trading organisation usually needs a smaller amount of
working capital as compared to a manufacturing
organisation because there is usually no processing.
• Service industries which usually do not have to maintain
inventory require less working capital.
(ii)
Inflation:
• With rising prices, larger amounts are required even to
maintain a constant volume of production and sales.
• The working capital requirement of a business becomes
higher with higher rate of inflation.
(iii)
Seasonal factors:
• In peak season, because of higher level of activity, larger
amount of working capital is required by the business.
• As against this, the level of activity as well as the
requirement for working capital will be lower during the
lean season by the business.
(iv)
Growth prospects:
• If the growth potential of a concern is higher, it will require
larger amount of working capital.
• This is to enable it to meet higher production and sales target
whenever required.
:
(i) Stability of dividend:
• Companies generally follow a policy of stabilising dividend
per share.
• The increase in dividends is generally made when there is
confidence that their earning potential has gone up and not just
the earnings of the current year.
(ii)
Shareholders’ preference:
• If the shareholders desire that at least a certain amount is paid
as dividend, in general the companies are likely to declare the
same.
• There are always some shareholders who depend upon a
regular income from their investments.
• (iii) Access to capital market:
Large and reputed companies depend less on retained
earnings to finance their growth as they have easy access to
• the capital market.
Such companies pay higher dividends than the smaller
companies which have relatively low access to the market.
(iv)
Legal constraints:
• Certain provisions of the Companies Act place restrictions on
payouts as dividend.
• Such provisions must be adhered to while declaring the
dividend.
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.