Business – 5.1 Business finance – Working capital | e-Consult
5.1 Business finance – Working capital (1 questions)
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Effective working capital management is crucial because:
- Liquidity Assurance: Maintaining adequate working capital ensures the firm can meet its short‑term debts and avoid cash shortages that could disrupt operations.
- Cost Efficiency: Proper control of inventory and receivables reduces holding costs, interest expenses, and the risk of obsolete stock, thereby improving profitability.
- Creditworthiness and Growth: A strong working capital position enhances the company’s credit rating, making it easier and cheaper to obtain external financing for expansion or investment opportunities.
- Operational Flexibility: Sufficient working capital provides the flexibility to take advantage of unexpected opportunities, such as bulk purchase discounts or rapid market changes.