Chapter 14 Working Capital Management. Key Sections (pages 441 - 446) Risk/return trade-offs in Working Capital Management Hedging principle. Introduction. Net WC – current assets less current liabilities
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Risk/return trade-offs in Working Capital Management
- Causes increase in risk of illiquidity especially
if financial condition deteriorates
- Uncertain interest costs year to year
Assets – temporary (seasonal) or permanent
Spontaneous sources – arise in normal course of business
Trade credit – accounts payable
Other payables and accruals
Discretionary sources – from an explicit decision by management, both short and long-term borrowings
- S-T Financing should be self-liquidating
- Temporary assets with current liabilities.
- Permanent assets with permanent financing, including permanent part of working capital