Q. Describe Working Capital Decision?
Working Capital Decision: - It is anxious with the management of current assets. It is a significant function of financial management. Current assets must be managed in such a way that the investment in current assets is neither insufficient nor unnecessary funds are locked up in current assets.
- If a firm doesn't have adequate working capital that is its investment in current assets is inadequate it may turn into illiquid and as a result mayn't be able to meet its current obligations.
- In contrast if the investment in current assets is too large the profitability of the firm will be adversely affected for the reason that idle current assets will not earn anything.