Question

How can a company manage its working capital (which is effect usage of current assets and liabilities)

A) Increase Debt
B) Decrease Inventory
C) Delay Accounts Payable
D) Accelerate Receivables

Answer 1

A company can manage its working capital by increasing debt for immediate cash flow, decreasing inventory to free up cash, delaying accounts payable to retain cash longer, and accelerating receivables for quicker cash inflows.

Step-by-step explanation:

To manage its working capital effectively, a company can implement several strategies. Increase Debt: By taking on more debt, a company can increase its immediate cash flow, enabling it to cover short-term liabilities. However, this can lead to higher interest expenses in the long term. Decrease Inventory: Reducing inventory levels can free up cash tied in unsold goods, thereby improving liquidity. Delay Accounts Payable: Paying suppliers at a later date extends the time cash remains with the company, although this might affect supplier relationships. Accelerate Receivables: Encouraging customers to pay their invoices more quickly improves cash inflows, providing more funds to cover liabilities. Each of these strategies has effects on a company's financial health and relationships and should be carefully considered.

Answer 2

Effective working capital management includes decreasing inventory, accelerating receivables, and delaying accounts payable. The increase in loans is influenced by a rise in demand and supply in the financial market. When accessing capital, borrowing keeps control with the owners, whereas issuing stock dilutes ownership.

Step-by-step explanation:

Managing working capital effectively is crucial for a company's short-term financial health. When trying to optimize working capital, companies may consider strategies such as B) Decreasing Inventory to reduce holding costs and free up cash, D) Accelerating Receivables to improve cash flow by collecting payments faster, or C) Delaying Accounts Payable to extend the time their cash can be used for other purposes. However, A) Increasing Debt might not be directly related to working capital management, as it refers to longer-term financing strategies.

As for financial market changes, an increase in the quantity of loans made and received can be attributed to a) a rise in demand for loans, as it suggests that more borrowers are seeking loans, and C) a rise in supply of loans, which indicates that lenders are more willing to provide financing. Companies seeking financial capital can borrow from banks, issue bonds, or issue stock. Borrowing maintains control of operations while issuing stock can dilute ownership but may be less risky in terms of recurring financial obligations.