Page 9 - PowerPoint Presentation

MANAGEMENT OF WORKING CAPITAL

Management of working capital

• Working capital management involves the management of current assets and
current liabilities.

• Net working capital = current assets - current liabilities

The management of cash

• A minimum amount of cash is required to meet day-to-day transactions
(transaction motive). Marketable securities are held as safety inventory to
meet unexpected demand (precautionary motive) or to fund investment

opportunities.

• Some firms hold large speculative balances of cash because they are
aggressively seeking good buying opportunities for commodities that they use
in their operations (speculative motive). Other firms don’t hold any speculative
balances.

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