MANAGEMENT

Detailed explanation-1: -Working capital here refers to the current assets less current liabilities (net working capital). It should be optimized because higher working capital means higher interest cost and lower working capital means a risk of disturbance of the operating cycle.

Detailed explanation-2: -Reduce inventory and increase inventory turnover Well-managed inventory management may be the most powerful leverage to working capital improvements. Achieving a higher net working capital calculation can be achieved by reducing slow-moving inventory, increasing the inventory turnover cycles, and avoiding stockpiling.

Detailed explanation-3: -What is the working capital optimization cycle? The working capital optimization cycle is a way of looking at a company’s receivables, payables and inventory and at how it handles those on a day-to-day basis. The cycle provides a look at how much working capital it takes to run your business.

Detailed explanation-4: -While a high level of working capital may indicate improved liquidity, operational efficiency, and increased profits, it is equally important to ensure that much-needed funds required for growth are not trapped in working capital.

Detailed explanation-5: -Working capital affects both the liquidity as well as profitability of a business. As the amount of working capital increases the liquidity of the business increases. However since current assets offer low return with the increase in working capital the profitability of the business falls.