What are the dangers of excess and adequate working capital?

Dangers of deficiency of working capital

· It may lead to business failure

· The firm cannot take advantage of new opportunity or adopt change

· Trade discount will be lost

· Cash discount will be lost

· Financial reputation will be lost

· Creditors may apply to court for winding up

· It affects dividend policy adversely

· The company cannot utilize its fixed assets properly

Dangers of Excessive working capital

· Excessive working capital means idle funds in the business which gives no profit. Thus the rate of return falls.

· The value of share may fall due to lower rate of return on investment.

· Efficiency of management may be declined.

· It may lead to speculation among the public

· Increased bad debt and wastage