Describe working capital decision, Financial Management

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Q. Describe Working Capital Decision?

Working Capital Decision: - It is anxious with the management of current assets. It is a significant function of financial management. Current assets must be managed in such a way that the investment in current assets is neither insufficient nor unnecessary funds are locked up in current assets.

If a firm doesn't have adequate working capital that is its investment in current assets is inadequate it may turn into illiquid and as a result mayn't be able to meet its current obligations.
In contrast if the investment in current assets is too large the profitability of the firm will be adversely affected for the reason that idle current assets will not earn anything.

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