Inadequate working capital | Meaning | Disadvantages

What is Inadequate working capital?

Inadequate working capital means shortage of working capital to meet the day to day operating activities of the business concern. In other words, the quantum of inadequate working capital is the difference between actual working capital and adequate working capital.

Disadvantages of Inadequate working capital:

The following are the dangers, limitations or disadvantages of inadequate working.

1. The growth of the business concern will be stagnated. The reason is that the business concern is not in a position to take up a profitable venture due to unavailability of working capital funds.

2. It affects the goodwill of the company.

3. The objectives of the business concern cannot be achieved. Moreover, average rate of return cannot be earned by the company.

4. The short term liabilities cannot be met in time.

5. Fixed assets cannot be used properly due to inadequate working capital.

6. The market opportunities like cash discount and trade discount cannot be availed by the business concern.

7. Sometimes, business opportunities are not utilized due to non availability of adequate working capital.

8. Production capacity is not used fully. It results in the low level of production. This leads to failure to meet the regular demands. Hence, the customers may switch over to some other products.

9. It directly affects the liquidity position of the business firm.

10. Whenever the goodwill of the company is affected, the credit worthiness of the company is decreased to some extent among the banks and financial institutions.

Leave a Reply

Recent Posts

Related pages

forward contract vs futures contractdumping in international businessfranchisee meaningstock market fluctuationlimitation of financial accountingtripartite agreement indiastrengths and weaknesses of autocratic leadershipduties of a banker in a banker customer relationshipmeaning of zero based budgetingsuccession planning advantages and disadvantagescooperative company advantages and disadvantagesmerger disadvantagesmethods of measuring labour turnovermimeograph stencil papermeaning of hundiesmeaning of activity based costinggatt definitionprivity to contractlist of negotiable instrumentsholder in due course meaning in hindimbo objectivestypes of documentary creditsprécis writingrbi meaningbusiness organization partnershipguidelines issued by sebiadvantages of a democratic leadernpv & irr method of capital budgetingmeaning of business correspondenceadvantages of indirect marketingjoint hindu family firmwhat is leverage ratiosmeaning caveatsadvantages of petty cash bookconsumable goods meaningtangible goods in economicsfacility layout in operations managementidra insurancemixed economy in economicsis nigeria a mixed economyequity share capital and preference share capitalrbi structure and functionsadvantages and disadvantages of organizational structurelabour turnover meanscif meaning in shippingwhat is iou in accountingdefinition of bills receivableadvantages of target marketinglabour variance formularole of commercial banks in entrepreneurial developmentsocialism mixed economydrawbacks of advertisementsebi was set up indecentralization in rwandaprofitability ratio meaningdefine cashbookdisadvantages of operations managementdefinition arrearsseniority promotionlogistical defeconomic batch quantity exampleadvantages and disadvantages of systematic sampling methodqualities of a good salesmanwhat is consumerism in marketingnon redeemable debentureswhat is the difference between merger and amalgamationtypes of wholesalers with examplestypes of mergers and acquisitions with examples pptcalculate payback period formulastructure european unionmeaning of cash equivalentnegotiability and assignabilityurbanization of indiaindian stock market ppt