Working capital is the difference between a company's current assets and current liabilities. It affects both the liquidity and profitability of a business.

Liquidity
- Working capital is an important indicator of a company's liquidity.
- A company with a high level of working capital has a better ability to pay off its short-term obligations.
- On the other hand, a company with low working capital may struggle to meet its obligations, which may lead to a liquidity crisis.
- In turn, this can negatively impact the company's reputation, credit rating, and ability to secure financing.

Profitability
- Working capital also affects a company's profitability.
- A company that effectively manages its working capital can optimize its operations, reduce costs, and increase profits.
- For example, a company that has a high level of inventory may be tying up too much capital in goods that are not selling.
- By reducing inventory levels, the company can free up cash to invest in other areas of the business, such as marketing or research and development.
- If a company is unable to manage its working capital, it may have to rely on expensive short-term financing, which can eat into profits.

Conclusion
In summary, working capital is a critical component of a company's financial health. A company with a healthy level of working capital is better positioned to meet its short-term obligations, while also maximizing profitability. By contrast, a company with insufficient working capital may struggle to stay afloat, leading to a range of negative consequences.

Working capital is the difference between current assets and current liabilities. It affects both liquidity and profitability of the business. The increase in current assets increases the liquidity position of the business but affects the profitability adversely because the return on current assets is quite low.