ECONOMIZING ON CASH INVESTMENT IN CURRENT ASSETS

Once a firm has acquired the necessary buildings and fixtures to begin operations, most of its cash flows are the result of investing in and selling of current assets. The bulk of a firm's cash expenditures are for the purpose of either purchasing or adding value to inventories. Inventories that have already been sold but have not yet generated cash inflows are listed as accounts receivable. Excess cash that is not currently used to finance other current assets or that is not needed to pay immediate debt obligations is temporarily invested in marketable securities. All of a firm's cash inflow from normal operations is generated from sales. Sales occur as the eventual result of the liquidation of inventories. Consequently, except for the infrequent events of replacing or adding to fixed assets, cash flow management is virtually synonymous with current asset management.