In order to manage working capital effectively, two competing goals-profitability and liquidity-must be balanced. A company...

Transcribed Image Text:

In order to manage working capital effectively, two competing goals-profitability and liquidity-must be balanced. A company is said to be overcapitalized if it has an excessive amount of working capital. High levels of cash, inventory, and receivables and low levels of payables characterize an overcapitalized business (Talekar, 2005). Talekar, S. D. (2005). Management of working capital. Discovery Publishing House. Questions: 1. What are the advantages of having too much money on hand? Why is being liquid undesirable? 2. What are the drawbacks of low capitalization? How does this impact the management of working capital in businesses? In order to manage working capital effectively, two competing goals-profitability and liquidity-must be balanced. A company is said to be overcapitalized if it has an excessive amount of working capital. High levels of cash, inventory, and receivables and low levels of payables characterize an overcapitalized business (Talekar, 2005). Talekar, S. D. (2005). Management of working capital. Discovery Publishing House. Questions: 1. What are the advantages of having too much money on hand? Why is being liquid undesirable? 2. What are the drawbacks of low capitalization? How does this impact the management of working capital in businesses?

Answer rating: 100% (QA)

1 Advantages of having too much money on hand overcapitalized a Increased financial stability Having excess cash reserves provides a cushion to withstand unexpected financial challenges or economic do... View the full answer