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Which of the following are characteristics of an “aggressive” policy relating to the level of investment in current assets?
1. Allowing extended credit to customers
2. Taking extended credit from suppliers
3. Holding no buffer stockA. 1 only
B. 2 and 3 only
C. 3 only
D. 1, 2 and 3I chose B, however, the correct answer is C. I thought that taking extended credit would increase payables and hence, lower level of working capital (inventory + receivables – payables), and an aggressive working capital policy is to hold low working capital level.
Can you please explain why?
Iniss.Yea
Taking extended credit from suppliers: An aggressive policy involves taking advantage of extended payment terms offered by suppliers. This allows the company to delay cash outflows and preserve its working capital.
No buffer stock
An aggressive policy means that the company maintains minimal levels of inventory.
This helps to reduce holding costs but may increase the risk of stockouts and potential disruptions in the supply chain.
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