Page 135 - FM Integrated WorkBook STUDENT 2018-19
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Working capital management
The objectives of working capital
management
The main objective of working capital management is to get the balance of current
assets and current liabilities right
It can be seen as a trade-off between profitability and liquidity.
Liquidity Profitability
Ensuring
current Investing in
assets are less liquid
sufficiently assets in
liquid to order to
minimise the maximise
risk of return
insolvency
If a business has large amounts of cash then it should be able to pay its bills on time
– liquidity is the priority.
But this cash could have been invested elsewhere, for instance in offering better
credit terms to customers to attract more business. This would potentially increase
profitability but at the expense of liquidity.
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