5765 chapter 14 hint stated differently some portion

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Unformatted text preview: ne’s 1000,” Financial Management (Winter 1985), pp. 57–65. CHAPTER 14 Hint Stated differently, some portion of current assets is usually held to provide liquidity in case it is unexpectedly needed. Working Capital and Current Assets Management 599 current liabilities are relatively predictable. When an obligation is incurred, the firm generally knows when the corresponding payment will be due. What is difficult to predict are the cash inflows—the conversion of the current assets to more liquid forms. The more predictable its cash inflows, the less net working capital a firm needs. Because most firms are unable to match cash inflows to outflows with certainty, current assets that more than cover outflows for current liabilities are usually necessary. In general, the greater the margin by which a firm’s current assets cover its current liabilities, the better able it will be to pay its bills as they come due. The Tradeoff Between Profitability and Risk profitability The relationship between revenues and costs generated by using the f...
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