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Working capital management.
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Working capital management involves managing a company's short -term assets and liabilities to ensure it has sufficient liquidity to carry out its day -to -day operations efficiently.
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A significant portion of financial manager's time is devoted to this area due to its direct impact on a company's operational efficiency and profitability.
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Working capital policy primarily revolves around two fundamental questions.
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What is the optimal? amount of each type of current asset.
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Current assets are assets expected to be converted into cash or consumed within a year, including cash, accounts receivable, inventory, and marketable securities.
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The optimal level of cash ensures that a firm can meet its short -term obligations without holding the excessive cash that could otherwise be invested.
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Accounts receivable involves determining the optimal credit policy that balances the risk of non -payment with the benefits of increased sales.
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The goal is to maintain enough inventory to meet customer demand without overstocking, which ties capital and incurs holding costs.
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And marketable securities are short -term investments that provide liquidity and yield returns...