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receivables and back to cash. As cash substitutes, marketable securities are considered part of working capital.
Current liabilities represent the firm’s short-term financing, because they
include all debts of the firm that come due (must be paid) in 1 year or less. These
debts usually include amounts owed to suppliers (accounts payable), employees
and governments (accruals), and banks (notes payable), among others.
As noted in Chapter 8, net working capital is commonly defined as the difference between the firm’s current assets and its current liabilities. When the current
assets exceed the current liabilities, the firm has positive net working capital.
When current assets are less than current liabilities, the firm has negative net
The conversion of current assets from inventory to receivables to cash provides the source of cash used to pay the current liabilities. The cash outlays for 1. Lawrence J. Gitman and Charles E. Maxwell, “Financial Activities of Major U.S. Firms: Survey and Analysis of
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