What is the primary objective of working capital management in corporate finance?
AMinimizing long-term debt liabilities
BMaximizing gross revenues only
CEliminating equity financing costs
DBalancing liquidity and profitability
Explanation
* Working capital management aims to ensure a firm has adequate liquidity to meet short-term operational commitments while maximizing profitability.
* Holding excessive liquid assets reduces profitability (opportunity cost), while holding too little increases default risk.
* Key components managed include cash, accounts receivable, inventory, and accounts payable.
Exam Relevance
- Topic: Financial Management
- Subtopic: Working Capital Management
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