The primary objective of short-term ﬁnancial management is to:
A) Find the optimal trade-off point between carrying costs and shortage costs.
B) Minimize the investment in net working capital.
C) Minimize the use of external ﬁnancing.
D) Locate the source of ﬁnancing that provides the lowest cost of capital.
E) Fund all company operations using long-term debt.

Question

Quizplus · Accepted Answer

The primary objective of short-term financial management is to find the optimal trade-off point between carrying costs and shortage costs, which involves managing the levels of current assets and current liabilities to ensure that a company has enough liquidity to meet its immediate cash needs while minimizing the costs associated with excess or shortage of cash. Minimizing investment in net working capital and minimizing the use of external financing are important goals, but they are secondary to achieving the optimal trade-off. Locating the source of financing that provides the lowest cost of capital is a long-term financial management objective, and funding all company operations using long-term debt is not a practical or sustainable strategy for most businesses.

The Primary Objective of Short-Term ﬁNancial Management Is To