Introduction to Working Capital Management, Determinants of Working Capital, Significance of advantages of adequate working capital , Disadvantages of Excessive working capital and Disadvantages of Inadequate working capital

1. Dr.U.PRIYA, M.Com., M.Phil., DCAcc., Ph.D
Assistant Professor of Commerce
Faculty of Science and Humanities
SRM Institute of Science and Technology
Kattankulathur

3.  Nature or character of Business
 Size of Business/Scale of Operation
 Production Policy
 Manufacturing Process/Length
 Seasonal Variations
 Working capital cycle
 Rates of Stock Turnover
 Credit policy
 Business cycle
 Earning Capacity and Dividend policy
 Tax Level
 Other Factors

4.  Solvency of the Business
 Goodwill
 Easy loan
 Cash Discounts
 Regular Supply of Raw Materials
 Regular Payment of Salaries, Wages and
Other Day-to-Day Commitments
 Exploitation of Favorable Market Conditions
 Ability to Face Crisis
 Quick and Regular Return on Investments
 High Morale

5.  Excessive working capital means idle funds which earn no
profits for the business
 Where 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.
 It may result into overall inefficiency in the organization.
 When there is excessive working capital, relations with
banks and other financial institutions may not be
maintained.
 Due to low rate of return on investments, the values of
shares may also fall.
 The redundant working capital gives rise to speculative
transactions

6.  1. Lack Of Solvency
 2. Liquidity Problem
 3. Opportunity Loss
 4. Damage Goodwill
 5. Inefficiency
 6. No Discount
 7. No Attraction Of Investors
 8. Low Rate Of Return