MANAGEMENT

Detailed explanation-1: -When there is a redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses. Excessive working capital implies excessive debtors and defective credit policy which may cause higher incidence of bad debts.

Detailed explanation-2: -Disadvantages of Negative Working Capital A lack of ready cash can also leave a business vulnerable, since more funds may be needed at short notice for anything from repairs, legal expenses, or riding out an unforeseen financial downturn.

Detailed explanation-3: -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-4: -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-5: -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.