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Which set names the three key cash management strategies?
ACollect receivables fast, pay payables late, hold little stock
BCollect receivables late, pay payables fast, hold much stock
CBorrow heavily, invest in fixed assets, pay large dividends
DRaise prices, cut wages, delay all the capital projects
Answer & Solution
Correct answer: A. Collect receivables fast, pay payables late, hold little stock
1. The financial manager tries to shorten the time between paying for inventory or services and collecting cash from sales.
2. The first strategy is to collect money owed to the firm, its accounts receivable, as quickly as possible.
3. The second is to pay money owed to others, its accounts payable, as late as possible without damaging the firm's credit reputation.
4. The third is to minimize the funds tied up in inventory.
5. Reversing the first two would hand cash to suppliers early while leaving it uncollected from customers, which is the trap the second option sets.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.2 How Organizations Use Funds_
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