Page 201 - 5.2 i. Manac Finance ITC Summarised Notes

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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