Disadvantages or Dangers of Inadequate Working Capital
Posted by Ripon Abu Hasnat 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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