Smooth Flow of Production: To maintain a smooth flow of production, it is necessary that adequate working capital is available for paying trade suppliers, hiring labour and incurring other operating expenses.
Unforeseen contingencies like business depression, financial crisis due to huge losses etc.
For example advertising the product of the firm requires special working capital. A firm is always working with the expectation of some risks which may be controllable or uncontrollable. It is useful for the following purposes: a It is the total investment in current assets which earns profit.
Components or Composition of Working Capital: There are two components of working capital viz. For example the firm is required to maintain the minimum level of raw material, finished goods or cash balance etc.
Working capital management outlines a major part of the daily activities of an Entrepreneur. Regular Payment of Wages and Salaries: The firm can make regular and timely payment of wages and salaries to its employees.
This activity is very important and requires attention because working capital maintains the daily business operations smooth.