Working capital investment policy

An aggressive investment policy typically involves investing a lower amount of funds in current assets, which can lead to higher profitability in the short term. However, this approach may result in lower liquidity and higher financial risk.

In the context of trade payables, an aggressive investment policy may result in higher trade payables as the company prioritises using short-term financing to fund its current assets, including trade payables.

This allows the company to maintain lower levels of working capital and potentially increase profitability. However, it is important to note that high trade payables alone may not be sufficient evidence to conclude that a company has an aggressive investment policy.

Major components of working capital are its current assets and current liabilities, and the difference between them makes up the working capital of a business.

Current assets comprise trade receivables, inventory, and cash & bank balances, and current liabilities majorly comprise trade payables.

Without trade payables, a company would need cash on hand every time it purchased from its suppliers. That means, raising more working capital or turning to a bank.

Does it say “one”?

Are you modifying questions to get an answer?
Where is the question from?

Is this from John’s videos?

I think I have already said to you, in my opinion you have too many sources of information for FM that will often conflict in the way “you” interpret the answer.

When will you learn that I am trying to help you.
The fact that you have written in capitals is somewhat concerning.

The level of trade payables is “typically “considered as part of the working capital funding policy rather than the working capital investment policy.
The working capital funding policy focuses on how the company will finance its current assets, including trade payables, through short-term or long-term sources of funds.

On the other hand, the working capital investment policy deals with the management of current assets, such as inventory and trade receivables, to ensure efficient utilisation and optimisation of working capital.

Trade payables, being a liability, are “usually” included in the funding policy as they represent a source of financing for the company’s working capital needs.