Keeping in mind that it is a highly capital intensive sector, what factors will affect the fixed and working capital ? Given reasons with regard to both in support of your answer.

Explanation

The working and fixed capital requirement of S Ltd will be high due to following reasons :
(i) The business is capital intensive and the scale of operation is large.
(ii) Heavy investments are required for building up the production base and for technological upgradation.
(iii) In case of steel industry, the major input are iron ore and coal. The ratio of cost of raw material to total cost is very high. Hence, higher will be the need for working capital.
(iv) The longer the operating cycle, the lar4ger is the amount of working capital required, as the funds get locked up in the production process for a long - period of time.
(v) Terms of credit for buying and selling goods, discount allowed by suopppliear and to the customers also determine the equantum of working capital.