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Explain The Importance Of Working Capital

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Importance of working capital


Every society needs working capital to run across its short-term expenses. It keeps the business moving. Without it, the work concern volition stop, as well as the society volition boot the bucket sick.

Explained below is the importance of working capital.

Explained below is the importance of working working capital missive of the alphabet Explain the Importance of Working Capital

Image credits © Prof. Mudit Katyani.

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

The related article on this topic:

  1. Importance of fixed capital.

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