Financial Management: Principles and Applications, 13/e

18.5 Managing the Firm’s Investment in Current Assets

At any point in time, the primary types of current assets that most firms hold are cash and marketable securities, accounts receivable, and inventories. We will first look at cash and marketable securities and then move on to accounts receivable, followed by inventories.

Managing Cash and Marketable Securities

Firms hold cash in their bank accounts and invest in highly liquid investments known as marketable securities. When a firm runs short of the cash it needs to pay its bills on a timely basis, it can easily sell a portion of its marketable securities portfolio to replenish its bank balance. The obvious cost of holding too little cash and marketable securities is the potential for defaulting ...