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Question:

How does working capital affect both the liquidity as well as profitability of a business?

Answer:

Working capital means the portion of capital which is invested in current assets. This investment facilitates smooth day-to-day operations of the business. It affects both the profitability as well as liquidity of a business.

  • The increase in current assets will provides more liquidity to the business but it affects the profitability because these assets provide little or low return.

  • If there is low working capital it will affect the liquidity of the business which leads to create problem or disturb in day to day operations of the business.


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  • Answered by Ekta Mehta
  • 4 months ago

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