MANAGEMENT

Detailed explanation-1: -The more of your current assets your inventory holds, the more you can improve your working capital by making smart adjustments to your inventory management. Learn more about inventory management here.

Detailed explanation-2: -Overstocking-having too much inventory-reduces the working capital available for other types of current assets. The business won’t have enough left to extend credit to customers. Overstocking also results in increased carrying costs for inventory. On the other hand, understocking is damaging as well.

Detailed explanation-3: -Inventory to working capital ratio is defined as a method to show what portion of a company’s inventories is financed from its available cash. This is essential to businesses which hold inventory and survive on cash supplies. In general, the lower the ratio, the higher the liquidity of a company is.

Detailed explanation-4: -High working capital signals that a company is shrewdly managed and also suggests that it harbors the potential for strong growth. Not all major companies exhibit high working capital. In fact, some large corporations have negative working capital, where their short-term debts outweigh their liquid assets.