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Which working capital policy maintains a high proportion of current assets relative to total sales, providing safety but lowering return?

AModerate Working Capital Policy
BRestricted (Aggressive) Working Capital Policy
CMatching Policy
DRelaxed (Conservative) Working Capital Policy

Explanation

* A Relaxed (Conservative) Working Capital Policy keeps large balances of cash, marketable securities, and inventory.
* It minimizes stockout and default risks but lowers overall Return on Assets (ROA) due to idle liquid assets.
* An Aggressive policy maintains minimal current assets to maximize turnover and returns.

Exam Relevance
  • Topic: Financial Management
  • Subtopic: Working Capital Management
Submitted by: mcqstutor Team More Finance & Accounting MCQs →

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