Distinguish between the motives for holding cash and motives for holding inventory
Answers
Motives for Holding Cash and Marketable Securities Working Capital Management. Transactions Motives: Transaction motivesrequire a firm to hold cash to conduct its business in elite ordinary course. The firm needs cash primarily to make payments for purchases, wages, operating expenses, taxes, dividends, etc.
While doing a business there is always conversion of goods to cash, and cash to goods, in that transactions, money is gained and called as profit earned. Holding cash means, there are varieties of option present for purchase of materials in exchange of money, and it represents total buying capacity of the cash holder.
Whereas the motive of inventory holding are a bit different. Unlike cash the value of inventory fluctuates according to the present market conditions, so having an inventory means there could be a profit or loss, on exchanging it with cash.