ECONOMICS

Detailed explanation-1: -A Negative Working Capital Cycle is when a business collects money at a faster rate than the time required to pay its bills. This means the business can free up cash quickly for use elsewhere that would otherwise be stuck in the cycle.

Detailed explanation-2: -Inventory is part of a company’s working capital. Inventory is classified as current assets because it is typically consumed within a year as part of the production process. Inventory incurs warehousing costs and is considered opportunity cost.

Detailed explanation-3: -A company’s working capital is the amount of money it needs to finance its current operations. This means that if a firm has too much inventory in stock, then it will have higher expenses and less cash flow available for day-to-day business activities such as payroll and paying bills.

Detailed explanation-4: -With excessive working capital, too much of inventories are accumulated. This accumulation beyond needs may cause critical damages to the firm holding the inventories. With growing inventories, mishandling the inventories may become rapid. This leads to mismanagement of the inventories.