Q. Disadvantage or redundancy of excessive working capital?
Excessive working capital means idle funds which earns no profit for the business operation it should have nighters redundant or excess working capital. Where there is redundant working capital it may lead the unnecessary purchasing and accumulation of inventory causing the more changes of theft, wastage and the losses excessive working capital implies excessive debtors and defective credit policy which may cause high incidence of the bad debts It may result into overall inefficiency in the organization when there is excessive working capital relation with banks and other financial instauration not be maintained due to low rate on the investment the value o the share also be fall the redundant working capital gives rise to speculative transactions.
Disadvantage or DANGERS of inadequate working capita concerns which have inadequate working capital cannot pay its short terms liabilities in time thus it will lose its reputations and shall not be able to get good credit facilities. It cannot by its requirement in bulk and cannot avail the discount etc.
It become difficult for the firm to exploit favorable market condition and undertake profitable condition are undertake profitable condition project the ct due to lack Of working capital the firm cannot pay day to day expenses to its operation and it creates insufficient, increase the cost and reduces the profit of the business. It become impossible to utilize efficiently the fixed assets due to the non availability of the funds The rate of return on the investment also falls with the shortage of the working capital.