Managing the relationship between current assets and current liabilities of the firm in order to improve the flow of funds is called ________.
A)the business operating cycle
B)the cash conversion cycle
C)working capital management
D)the production cycle

Question

Quizplus · Accepted Answer

Working capital management involves managing the relationship between current assets (such as cash, accounts receivable, and inventory) and current liabilities (such as accounts payable and short-term loans) in order to ensure that a firm has sufficient funds to meet its short-term obligations and to support its ongoing operations. This involves optimizing the levels of each type of asset and liability in order to maximize cash flow and minimize risk, while also ensuring that the firm can meet its financial obligations and operational needs on an ongoing basis. The business operating cycle and production cycle are related concepts, but they are not the same as working capital management. The cash conversion cycle is a specific metric used in working capital management to measure the time it takes for a firm to convert its inventory and other assets into cash.

Managing the Relationship Between Current Assets and Current Liabilities of the Firm