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Discuss how Working capital affects both the liquidity and profitability of a business?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 aliya bhat asked about 2 years ago

Hi I am one of the CA student. Please Discuss how Working capital affects both the liquidity and profitability of a business?

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Chirag answered about 2 years ago

**How Working capital affects both the liquidity and profitability of a business?** Working capital by its defiition means the capital employed in day-to-day operation/running of business. To run the business you need capital and if the cycle of the working capital is too long you might face problems in paying your current liabilities which is nothing but liquidity crunch. So if you have a liquidity cunch you go to a lender/bank but they charge interest and this interest would eat up a portion of your profit and hence your overall profitability will get affected.

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