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CURRENT ASSET MANAGEMENT
Besides managing the long-term assets, the financial manager has a duty to manage current assets efficiently to safeguard the firm against illiquidity or insolvency. Investment in current assets affects firm's profitability and liquidity.
If the firm does not invest sufficient funds in current assets, it may become illiquid. But it would lose profitability as idle current assets would not earn anything.
Thus, a proper trade off must be achieved between profitability and liquidity. In order to ensure that neither insufficient nor unnecessary funds are invested in current assets, the financial manager should develop sound techniques of managing current assets. He should estimate firm's working capital needs and make sure that funds would be made available when needed.
The financial decisions of the firm are interrelated and jointly • affect the market value of its shares, by influencing return and risk of the firm. A proper balance between return and risk should be maintained to maximise the market value of firms' shares.
Such a balance is called risk-return trade-off and every. Financial decision involves this trade-off. The interrelation between market value, Smasciall decisions and risk return trade-off is depicted in fig. 2.2 rolich also gives an overview of the functions of financial ummement.
LIQUIDITY vs PROFITABILITY | MAXIMISATION OF RETURN | WEALTH MAXIMISATION | Constraints - Policy Decisions - Profitability | IMPLICATIONS OF WEALTH MAXIMISATION | Suppliers of Loan Capital | RELEVANCE OF WEALTH MAXIMISATION | Retaining earning and Undistributed profits | Managerial finance function | Functions of Financial Management | FINANCIAL FORECASTING | MANAGEMENT OF CORPORATION ASSET STRUCTURE | THE MANAGEMENT OF INCOME | MANAGEMENT OF CASH | DECIDING OUT NEW SOURCES OF FINANCE | CONTACT AND CARRY NEGOTIATIONS FOR NEW FINANCING | ANALYSIS AND APPRAISAL OF FINANCIAL PERFORMANCE | INCIDENTAL OR ROUTINE FUNCTIONS | CAPITAL BUDGETING DECISION | CURRENT ASSET MANAGEMENT | Maximisation of Share Value | RESPONSIBILITIES OF FINANCIAL MANAGEMENT IN THE FIRM | Functions of the Treasurer and Controller | TASKS OF FINANCIAL MANAGEMENT | CHALLENGES OF FINANCIAL MANAGEMENT | Gross and Net Savings | Household Savings | How to politely win when credit disputes and problems arise