Working capital investment policy

A conservative investment policy holds relatively more current assets, providing liquidity and service protection but tying up funds. An aggressive investment policy holds relatively fewer, potentially improving returns while increasing exposure to shortages, collection problems or cash disruption. The appropriate balance depends on the operating cycle, industry, reliability of supply and receipts, and management's risk tolerance. Distinguish the level of assets held from the separate policy for financing them. A company can combine an aggressive current-asset investment policy with a conservative funding structure, or vice versa.