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LG1 firm’s current assets (inventory, accounts receivable,
cash, and marketable securities) and current liabilities (accounts payable, accruals, and notes payable)
in a manner that positively contributes to the firm’s CHAPTER 14 Working Capital and Current Assets Management value. Net working capital is the difference between
current assets and current liabilities. Profitability is
the relationship between revenues and costs. Risk,
in the context of short-term financial decisions, is
the probability that a firm will become technically
insolvent—unable to pay its bills as they come due.
Assuming a constant level of total assets, the higher
a firm’s ratio of current assets to total assets, the
less profitable the firm, and the less risky it is. The
converse is also true. With constant total assets, the
higher a firm’s ratio of current liabilities to total
assets, the more profitable and the more risky the
firm is. The converse of this statement is also true.
Describe the cash conversion cycle, its funding
requirements, and the key strategies for managing it. The cash conversion cycle represent...
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