IMPORTANCE OF WORKING CAPITAL
1. For continuous Production, Purchase of raw material is required at regular interval. This will be only possible if the firms have sufficient working capital.
2. Most of the business required loans from the market. For getting loan at favorable terms it is very necessary to maintain sufficient reserve of working capital because it shows the good solvency position of the firm.
3. The firms which have adequate reserve of working capital are in position of purchasing goods in cash and we all know that cash purchase helps in getting good discount which result in low production costs.
4. Sufficient reserve of working capital also increases the ability of the firm to fight with the bad situations such as depression, dull market conditions.
5. Only adequate reserve of working capital helps the firms to take advantage at the time of good market conditions as the firm is in position to increase the production according to the demand.
6. The maximum use of fixed assets, minimum wastages in production process, payment of liabilities, fearless productions are only possible if a firm have sufficient reserve of working capital.
7. Salary and wages are paid timely if the firm has adequate reserve of working capital. A satisfied staff and labor is very much dedicated to their firm and thus increase productivity.
8. Working capital cycle is quickly rotate with the adequate amount of working capital which results in high production at low cost. This will bring profitability to the firm.