Optimal Level of Working Capital

Optimal Level of Working Capital:

It is that level where company is able to pay day to day expenditures and company has sufficient cash to purchase the stocks in case when it does not receive money from debtors on time. This level is attained by thinking and employing the methods of working capital management. We all know that both low level and over level of working capital is risky for development of business. When company has not sufficient cash to repay its liability, it will make the risk of solvency and liquidity and company might go for liquidation. In situation, company has over working capital, it will be misuse of money since that money is not gaining any earning and its opportunity cost will endure by shareholders and ultimately it will reduce the value of share in share market. Therefore, as finance manager, you must try to make equilibrium or optimal or optimum level of working capital.

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