Disadvantages or Dangers of Inadequate Working Capital

Posted by Muhammad Jakirul Haque Talukder on Wednesday, May 27, 2015 | 0 comments

1. A concern which has inadequate working capital cannot pay its short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities.

2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.

3. It becomes difficult for the firm to exploit favorable market conditions and undertake profitable projects due to lack of working capital.

4. The firm cannot pay day-to-day expenses of its operations and its created inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds.

6. The rate of return on investments also falls with the shortage of working capital.

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