Disadvantages of Redundant or Excessive Working Capital
Posted by Ripon Abu Hasnat on Wednesday, May 27, 2015 | 0 comments
1. Excessive Working Capital means ideal funds which
earn no profits for the business and hence the business cannot earn a proper
rate of return on its investments.
2. When there is a redundant working capital, it may
lead to unnecessary purchasing and accumulation of inventories causing more
chances of theft, waste and losses.
3. Excessive working capital implies excessive debtors
and defective credit policy which may cause higher incidence of bad debts.
4. It may result into overall inefficiency in the
organization.
5. When there is excessive working capital, relations
with banks and other financial institutions may not be maintained.
6. Due to low rate of return on investments, the value of
shares may also fall.
7. The redundant working capital gives rise to
speculative transactions.
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