In financial terms, what does it mean to manage working capital?

Managing working capital involves optimizing a company's short-term assets and liabilities to ensure that it has sufficient liquidity to meet its short-term obligations while maintaining operational efficiency. This concept revolves around effectively handling the resources you need for daily operations and financing them with short-term funding.

By focusing on short-term assets such as cash, accounts receivable, and inventory, as well as short-term liabilities like accounts payable and other commitments, a company can better manage cash flow, reduce financing costs, and improve profitability. This balance is essential, as it ensures that the business can operate smoothly without the risk of running out of cash for day-to-day expenses or encountering financial distress due to unmanageable short-term debts.

The other options represent different aspects of business operations but do not directly relate to the concept of working capital management. Streamlining manufacturing processes focuses on production efficiency rather than asset and liability management. Ensuring maximum inventory levels could lead to excessive stock costs and potential waste, rather than optimizing working capital. Reducing employee turnover is related to human resources and organizational health, not financial management of short-term assets and liabilities.