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These strategies should enable the firm to manage its

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Unformatted text preview: al insolvency) should positively contribute to the firm’s value. Similarly, the firm should manage its cash conversion cycle by turning inventory quickly; collecting accounts receivable quickly; managing mail, processing, and clearing time; and paying accounts payable slowly. These strategies should enable the firm to manage its current accounts efficiently and to minimize the amount of required investment in operating assets. The financial manager can use various techniques to manage inventory, accounts receivable, and cash receipts to minimize its operating cycle investment, thereby reducing the amount of resources needed to support its business. Employing these strategies, and using various techniques to manage accounts payable and cash disbursements to shorten the cash conversion cycle, should minimize the firm’s cash requirements, thereby positively contributing to its value. Clearly, active management of the firm’s working capital and current assets should positively contribute to the firm’s goal of maximizing its stock price. REVIEW OF LEARNING GOALS Understand short-term financial management, net working capital, and the related tradeoff between profitability and risk. Short-term financial management is focused on managing each of t...
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