Edgar A. Norton, Jr., CFA

Normal Illinois U.S.A.

Kenneth L. Parkinson

New York, New York, U.S.A.

Pamela Peterson Drake, CFA

Harrisonburg, Virginia, U.S.A.


After completing this chapter, you will be able to do the following:

  • Describe primary sources of liquidity and factors that influence a company’s liquidity position.
  • Compare a company’s liquidity measures with those of peer companies.
  • Evaluate working capital effectiveness of a company based on its operating and cash conversion cycles, and compare the company’s effectiveness with that of peer companies.
  • Explain the effect of different types of cash flows on a company’s net daily cash position.
  • Identify and evaluate the necessary tools to use in managing a company’s net daily cash position.
  • Calculate and interpret comparable yields on various securities, compare portfolio returns against a standard benchmark, and evaluate a company’s short-term investment policy guidelines.
  • Evaluate a company’s management of accounts receivable, inventory, and accounts payable over time and compared to peer companies.
  • Evaluate the choices of short-term funding available to a company and recommend a financing method.


The focus of this chapter is on the short-term aspects of corporate finance activities collectively referred to as working capital management. The goal of effective working capital management is to ensure that a company has adequate ready access to the funds ...

Get Corporate Finance: A Practical Approach, Second Edition now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.