Our textbook discusses working capital, which is also known as short term financial management as this is the management of current assets and current liabilities. Current assets and current liabilities are those known to be current, or within the year. Long-term is generally anything that exceeds a year. Therefore, when using net working capital, we can consider h ow this affects our current assets and current liabilities.
These types of debts can be something small like invoices owed to suppliers, and employee paychecks. As a business can increase profits by reducing costs, or increasing income somehow. At times, these are necessary measures to reduce or eliminate financial risk.
Risk occurs when there is a chance that a business will not be able to meet its financial obligations, or debts. Therefore, understanding how to utilize assets, maximize profitability, and knowing when to convert assets is a crucial part in financial management.