Multiple choice

What can be the bad effect of excessive working capital?

  1. The liquidity position is low.

  2. Profitable business opportunity goes out of hand.

  3. There is borrowing of funds at exorbitant rates

  4. Proper rate of return is not earned on the investment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

By the excessive working capital, the funds remain idle as the company has more funds than required. When funds remain idle, no profit is earned on idle funds. Hence, proper rate of return is not earned on the investment of the company.

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