The working capital requirements of any firm are determined by various factors as mentioned below:

1. Nature of business
2. Production policies
3. Manufacturing process
4. Turnover of circulating capital
5. Growth and expansion of business
6.  Business cycle fluctuations
7. Terms of purchase and sales
8. Conditions of supply
9. Market conditions
10. Dividend policies
11. Seasonality  of operations
12. Other factors consisting of:
    1. Absence of coordination in production and distribution policies resulting in a high demand for working capital
    2. Absence of specialization in the distribution of products which may enhance the need for working capital for the  concern,  as it will have to maintain an elaborate organization of its own for marketing the goods
    3. Sourcing of raw materials due to lack of infrastructure facilities such as roads, good transportation facilities etc, which may force higher requirement of working capital
    4. The import policy of the government
    5. The hazards and contingencies specific to the line of activity
    6. The working capital needs depending  on the nature of business e.g. service industry, trading, manufacturing etc.,
    7. Strong seasonal movements having  special working capital needs
    8. Manufacturing process  which is comparatively longer and complex in nature with wide variations in financial needs
    9. Dependence  on the assets conversion cycle
    10. Requirement of larger amount of working capital when  the company envisages growth with expansion
    11. Varying working capital requirements  with the business cycle fluctuations like recession, depression etc.,
    12. Terms of sale and purchase

m. Credit management policies influencing  the working capital needs of the company

1. A desire to maintain an established dividend policy

Negative factors:

One of the negative factors which influence the requirement of working capital of any firm is "diversion of working capital".

Making use of the short term funds for the long term uses by the borrower is called as "diversion of funds"

This can be explained as follows:

A firm is enjoying a working capital limit of $10000.00 with a banker and they are sanctioned with an additional limit of $5000.00. In case the   addition in short term funds made available by the banker to the firm is utilized by the firm for acquiring long term assets like land, machinery and/or buildings, the firm may not be in a position to utilize the  funds for it's short term uses like purchasing more stock of goods for production/sale and the purpose of availing an additional limit from the banker is itself  defeated. This method of utilizing short term funds for the long term uses is called the "diversion of funds".

Any banker who is desirous of sanctioning any loan facilities to the firm is always cautious about "diversion of working capital".

Diversion of working capital ultimately dilutes the current ratio below the stipulated level, thereby hampering the growth potentials of the firm to a great extent.