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Two companies, Acacia and Birch, have the following average levels of working capital:
Working capital level ($m)
Max
MinAcacia
10
6Birch
12
9Acacia’s working capital is financed with $4m of long-term debt and Birch’s working capital is financed with $9m of long-term c
The balance of finance is from short-term sources.
Identify, by clicking on the relevant boxes in the table, which type of working capital funding strategy each company is employing.
Acacia’s working capital funding strategy is aggresive, matching or conservative?
Birch’s working capital funding strategy is aggresive, matching or conservative?
Answer is Aggressive (for Acacia) and Matching (for Birch).
Can you help me with this question? I do not understand
In which kit did you find this question (and are you sure you have typed out the whole question correctly)?
I ask because it is rather strange as it appears because the maximum and minimum levels are not average levels 🙂
Acacia’s policy is aggressive because the long term working capital is greater than the long-term borrowing, which means that the extra is being financed by short-term borrowing which is more risky and more aggressive.
Birch is matching because the long-term working capital is always financed (‘matched’) but the long-term borrowing.
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