Final answer:
Working capital management is true to be the daily oversight of a company's operational needs via current assets and liabilities, focusing on managing inventory, accounts receivable, and payable alongside monitoring the cash conversion cycle.
Step-by-step explanation:
Working capital management is indeed the day-to-day management of a company's operational needs through the management of current assets and current liabilities. So, the statement provided is true. Working capital represents the difference between a firm's current assets and its current liabilities. Managing working capital effectively is crucial because it ensures a company has sufficient cash flow to meet its short-term obligations and fund its operational expenses.
The primary components of working capital management include inventory management, accounts receivable management, and accounts payable management. Properly managing inventory ensures that a company maintains the right balance between minimizing stock holding costs and meeting customer demand. Efficient accounts receivable management helps in accelerating cash inflows, thereby reducing the need for external financing. Timely handling of accounts payable affects a company's relationship with suppliers and its ability to negotiate favorable credit terms.
Moreover, an understanding of the cash conversion cycle is essential as it measures how effectively a company is managing its working capital. The cash conversion cycle calculates the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The shorter the cycle, the less time capital is tied up in the business process, and the better for the company's liquidity and profitability.