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other. The structures chosen should consistently lead to the maximization of the
value of the owners’ investment in the firm.
Important components of the firm’s financial structure include the level of
investment in current assets and the extent of current liability financing. In U.S.
manufacturing firms, current assets account for about 40 percent of total assets;
current liabilities represent about 26 percent of total financing. Therefore, it
should not be surprising to learn that short-term financial management—managing current assets and current liabilities—is one of the financial manager’s most
important and time-consuming activities. A study of Fortune 1000 firms found
that more than one-third of financial management time is spent managing current
assets and about one-fourth of financial management time is spent managing current liabilities.1
The goal of short-term financial management is to manage each of the firm’s
current assets (inventory, accounts receivable, cash, and marketable securities)
and current liabilities (accounts payable, accruals, and notes payable) to achieve
a balance between profitability and risk that cont...
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