What are the pros and cons of working capital?

The Pros

• You will have the cash on hand to deal with any cash flow problems.
• You can keep ownership of your company.
• You may not need to put up any collateral.
• You can borrow and repay quickly.
• You can spend the money however you want.
• You have to repay the loan.
• You may need to put up collateral.

What are the disadvantages of working capital?

Disadvantages of Negative Working Capital

• Bankruptcy Risk.
• Lower Rating Resulting in Higher Interest Rate.
• Growth Opportunities Missed.
• Investors and Bankers don’t find it worth Investing.
• Lost Trade Discount.
• Bad Financial Reputation.
• Winding Up Petition by Creditors.
• Bad Fixed Asset Turnover.

Is positive or negative net working capital better?

A positive working capital means that the company can pay off its short-term liabilities comfortably, while a negative figure obviously means that the company’s liabilities are high. This means he can invest for the short term and make additional profit on it.

What are the advantages of having sufficient working capital on hand?

The following are the advantages of adequate working capital. 1. Solvency of the Business: Adequate working capital ensures uninterrupted flow of production. The finished goods can be sold thereby increase in sales turnover and results in the sufficient cash in hand.

What are the disadvantages of having inadequate working capital?

A concern which has inadequate working capital cannot pay its short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities. It becomes difficult for the firm to exploit favourable market conditions and undertake profitable projects due to lack of working capital.

What is a good working capital?

Most analysts consider the ideal working capital ratio to be between 1.5 and 2. 12 As with other performance metrics, it is important to compare a company’s ratio to those of similar companies within its industry.

Is negative working capital a bad thing?

Negative working capital is an indication of poor management of cash flow and can occur due to abnormal damage to inventories or sale of goods at loss for a long period of time or a major debtor going bankrupt and you end up with a high bad debt balance. However, a negative working capital is not always bad.

Whats a good working capital?