Question

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

Answer 1

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Here is your answer

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✔ Working capital affects both the liquidity as well as profitability of a business.

✔ As the amount of working capital increases, the liquidity of the business increases.

✔ However, since current assets offer low return, with the increase in working capital the profitability of the business falls.

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