QUESTION IMAGE
Question
which of the following is a goal of working capital management?
to ensure that the maturity of current liabilities is less than the life expectancy of current assets
to set inventory at a level that meets demand but minimizes inventory costs
to replace credit transactions with cash transactions
to lengthen the net operating cycle as much as possible
Brief Explanations
- Analyze each option:
- First option: Maturity of current liabilities vs. life of current assets is not a core working capital (WC) goal. WC focuses on managing short - term assets/liabilities, not this specific maturity - life comparison.
- Second option: Inventory management is a key part of WC management. Balancing inventory to meet demand and minimize costs (like holding, ordering costs) is a primary goal, as inventory is a current asset.
- Third option: Replacing credit with cash transactions is not a WC goal. Credit management (like accounts receivable) is part of WC, but eliminating credit isn't the aim.
- Fourth option: Lengthening the net operating cycle (time to convert inventory to cash) is not a goal. Shorter cycles are better for liquidity, so lengthening is not desired.
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To set inventory at a level that meets demand but minimizes inventory costs