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Working Capital Purpose

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Define the purpose of working capital. How does extending credit affect working capital requirements and the cash conversion period (cycle)? Evaluate the consequences of inventory costs on Working Capital needs and the Cash Conversion Period.

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Working capital is needed to finance the short term liabilities of a business. Working capital is defined as current assets minus current liabilities and it tells us how much breathing room the company has as it pertains to its current liabilities.

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