Question

Which of the following is a goal of working capital management?

• To manage long-term assets in a way that maximizes returns
• To ensure liquidity while reducing opportunity costs
• To elongate the cash conversion cycle 
• To generate as much free working capital as possible

Answer 1

The answer is

To ensure liquidity while reducing opportunity costs

Working capital = Current Assets - Current Liabilities

Adequate amount of working capital is required to meet day to day expenses. However, opportunity costs must be minimized.

Working capital does not deal with long term assets.