Explain The Importance Of Working Capital

Importance of working capital

Every companionship needs working capital to run across its short-term expenses. It keeps the business moving. Without it, the employment organisation volition stop, too the companionship volition conk sick.

Explained below is the importance of working capital.

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1. Continuity inward Business Operations: Working upper-case missive of the alphabet keeps the employment organisation operations moving. It is needed to buy raw materials, to pay the workers too staff too every bit good to pay the recurring expenses similar electricity too ability bills, rent, etc.
2. Dividend Payment: Working upper-case missive of the alphabet is needed to pay a dividend to the shareholders. The payment of dividend takes house on a yearly or half-yearly basis.
3. Repayment of Long-Term Loans: Working upper-case missive of the alphabet is every bit good used to repay long-term loans too debentures. It volition last impossible to repay debentures, long-term loans too other long-term liabilities without it.
4. Increases Creditworthiness: Influenza A virus subtype H5N1 companionship that pays its creditors good on fourth dimension has a positive reputation inward the credit market. Such a goodwill helps a companionship to larn raw materials on credit. It tin every bit good larn loans too advances from the banks. The dealers are every bit good willing to laissez passer on money to the such a company. Hence, working upper-case missive of the alphabet increases company's creditworthiness.
5. Boosts Efficiency too Productivity: The companionship that faces no working upper-case missive of the alphabet problems provides ameliorate working weather condition too welfare facilities to its workers. It every bit good tin maintain its machines inward proficient conditions. It tin afford to pass coin for preparation too evolution of its workers. All such steps boost the efficiency too productivity of the company.
6. Helps to Fight Competition: Working upper-case missive of the alphabet helps the companionship to struggle its competitors. It tin last used to advertise too to produce sales promotion. The companionship tin every bit good afford to laissez passer on longer credit price to the customers.
7. Helps to Withstand Seasonal Fluctuations: Working upper-case missive of the alphabet is required throughout the year. But the sales may last seasonal inward nature. If the sales are down, the coin inflow is less. Therefore, liquid cash is required, to pay reward to workers too to run across other expenses. So, it helps the companionship to withstand seasonal fluctuations.
8. Increases Goodwill: The companionship that meets the needs of its working upper-case missive of the alphabet without whatever difficulty earns a proficient reputation inward the labour too upper-case missive of the alphabet markets. It is so, since, the companionship pays reward too salaries to the employees too the suppliers of raw materials, etc., inward time. Thus, it every bit good helps to increment the goodwill of the company.

The related article on this topic:

1. Importance of fixed capital.