Management of working capital is important because it affects the firm's:
A) liquidity.
B) profitability.
C) risk.
D) all of the above.

Question

Quizplus · Accepted Answer

Management of working capital plays a vital role in determining the liquidity, profitability, and risk of a firm. Effective management ensures that the firm has enough cash flow to meet its short-term obligations, which enhances its liquidity. If the firm has a positive working capital, it can generate profits from operational activities, which positively affects its profitability. Working capital management also helps in minimizing the risks involved in any business activity. Thus, all options mentioned in the question are affected by the efficient management of working capital.

Management of Working Capital Is Important Because It Affects the Firm's