Working capital 

 Assesses a company's ability to pay its current liabilities with its current assets,

giving us an indication of the subject’s short-term financial health, capacity to
clear its debts within a year, and operational efficiency.
 It represents the difference between the current assets and current liabilities of
an entity.
 It should be assessed periodically over time to ensure no devaluation occurs and
that there's enough of it left to fund continuous operations.
 It is calculated by using the current ratio, which is current assets divided by
current liabilities.  A ratio above 1 means current assets exceed liabilities, and,
generally, the higher the ratio, the better.
 A healthy business will have ample capacity to pay off its current liabilities with
current assets. A ratio of above 1 means a company's assets can be converted
into cash at a faster rate. The higher the ratio, the more likely a company can
honor its short-term liabilities and debt commitments. 

A higher ratio also means the company can easily fund its day-to-day operations.
The more working capital a company has, the less it’s likely to have to take on
debt to fund the growth of its business. 

A company with a ratio of less than 1 is considered risky by investors

and creditors since it demonstrates that the company may not be able to cover
its debt if needed. A current ratio of less than 1 is known as negative working
capital. 

Effect of keeping excessive cash to the working capital

Holding excess cash lowers return on assets, increases the cost of capital, increases
overall risk by destroying business value, and commonly produces overly confident
management. When the cash balance exceeds the actual working capital cash
balance need, you have excess cash. This cash is not necessary to the firm’s
financial operations. Increasing or decreasing excess cash balances is a leading
indicator of future good or bad times for the company. The excess cash balances
and increasing cash generation, needs to be invested or distributed.

Negative impact of excess cash:

 It lowers your return on assets
 It increases your cost of capital
 It increases overall risk by destroying business value and can create an overly
confident management team
Positive impact of excess cash:

 Excess cash on the balance sheet helps an organization manage its cash flow
efficiently. 
 To keep excess cash on hand as a buffer to meet day-to-day obligations in
case the onboarding of new clients takes time.
 he excess cash on the balance sheet ensures that the organization isn't forced
to borrow money. Since borrowing costs are high, organizations should
maintain some excess cash on hand to avoid taking short-term loans.

Effect of having shortage of cash to the working capital