Insufficient working capital in any enterprise may also result into I. Failure to adapt to changes II. Overcapitalisation III. Reduced availability of trade and cash discounts IV. Reduced volume of production and sales Codes :
I, III and IV only
Working capital must be adequate: both shortage and excess are harmful. The question asks what a shortage can lead to.
I. Failure to adapt to changes: a firm short of current funds cannot exploit profitable opportunities or respond to changing market conditions. This is a result of inadequacy.
II. Overcapitalisation: this means capital in excess of the firm's needs and earning power. Excessive (redundant) working capital may point to overcapitalisation, so it is a consequence of excess, not of shortage.
III. Reduced availability of trade and cash discounts: a cash-starved firm cannot pay suppliers promptly, so it loses cash discounts and its credit standing suffers. This is a result of inadequacy.
IV. Reduced volume of production and sales: lack of funds for materials and wages lowers capacity use, output and sales. This is a result of inadequacy.
So I, III and IV follow from insufficient working capital.
Hence, I, III and IV only.
Similar Questions
Statement - I : Working capital leverage measures the responsiveness of Return on Equity for changes in current Assets.
Statement - II : When the annual demand for an item is 3200 units, unit cost ₹ 6, inventory carrying charges 25% p.a. and cost of one procurement ₹ 150, the economic ordering quantity would be 700 units.
Codes :
The formula \(\frac{Q}{2}\) is used to compute the :
Match the items of List – I with the items of List – II :
List – I List – II (a) Trade credit and other payables that arise in the firm’s day today operations (i) Maturity Financing (b) Financing and asset needs over time (ii) Factoring (c) A tool for accelerating the collection from the customers (iii) Spontaneous financing (d) Seeking financial service to finance on its debtors’ balances (iv) Lockbox system Codes :
(a) (b) (c) (d)
Which one of the following emphasizes the qualitative aspects of working capital management ?
Cash Flow Management involves :
I. Lock-box system
II. Marketable securities
III. Playing the float
IV. Concentration Bank Account
Codes :
Concentration Banking is a method of :
Important Questions from Working Capital
Which of the following physical capitals is a working capital for a factory?
As per which one of the following approaches, a firm finances a part of its permanent working capital with short term financing?
Which of the following is not the problem of human capital formation?
Which one of the following will have a net change in the amount of working capital of a company?
_______ refers to the funds, which an organisation must possess to finance its day to day operations.
