Net working capital is determined by a firm's current assets and current liabilities. Managing working capital involves balancing investment in current assets with current liabilities to maintain adequate liquidity. A firm can use strategies like adjusting inventory levels or payment terms to optimize its cash conversion cycle. Maintaining sufficient yet efficient working capital is important for firms, including in Saudi Arabia, as it allows operational flexibility despite use of credit and leverage. A highly liquid firm has an advantage over a highly leveraged one during economic downturns, as it is better able to withstand cash flow issues and pay short-term debts.

1. Explain the determinants of net working capital and the cash
TASKWorking capital management involves managing the firm’s liquidity, which—in turn—
involves managing the firm’s investments in current assets and in the use of current
liabilities.Explain the determinants of net working capital and the cash conversion cycle.
How can these strategies be used in Saudi Arabian companies? Why is working capital so
important to a firm when the presence of credit and leverage tend to be utilized more?
What advantage does a highly liquid firm have over a highly leveraged firm? Explain.Embed
course material concepts, principles, and theories, which require supporting citations along
with three scholarly peer-reviewed references supporting your answer.Be sure to support
your statements with logic and argument, citing all sources referenced.