What is one advantage of effective working capital management?

Effective working capital management primarily focuses on managing the short-term assets and liabilities of a company to ensure that it maintains sufficient cash flow to meet its short-term obligations. By optimizing the management of receivables, payables, and inventory, a company can improve its liquidity position. This enhancement directly leads to a greater ability to pay off short-term obligations, which minimizes the risk of default and contributes to financial stability.

When a business can effectively manage its working capital, it can respond more swiftly to unforeseen expenses and maintain smooth operations without the stress of cash shortages. This proactive management helps in securing better terms from suppliers and can even reduce borrowing costs. Therefore, the ability to pay short-term obligations becomes a significant advantage, enhancing overall financial health and fortifying relationships with creditors and suppliers.

The other options, while they might indirectly benefit from good working capital management, are not directly tied to its primary advantage. Long-term investment returns, operational expenses, and shareholder dividends are influenced by a variety of factors beyond just managing working capital effectively.