Question

Which of the current asset management category, as a finance manager would you focus on and why?

Answer 1

There are so many current assets in the category. These are cash, accounts receivable, inventory, short-term investment, and prepaid expenses. The most important parts are accounts receivable, and inventory. I would focus on these two as a finance manager.

Reasons are as below:

No.1) accounts receivable: this is the account for customers who have purchased from the firm on-account. Ageing schedule should be done periodically so that unnecessary bad debts are not included with the amount. It helps to maintain a strict credit term. This is important in current ratio calculation (current assets / current liabilities) – a healthy ratio indicates better liquidity of the firm.

No.2) Inventory: this is the stock of raw-materials which is required to be maintained for day to day activity. Inventory should not be too high or too low, since in the first case this is the blockage of money and in the latter case it hampers production. An appropriate quantity of inventory should be maintained through EOQ calculation. This is to be focused because of such appropriateness, which is directly linked with current ratio and liquidity.