- This topic has 7 replies, 2 voices, and was last updated 4 years ago by
.
- Posts
Hi,
Question b(i)
1. Can I also talk about the increase in the trade receivables days and also the increase in the inventory days? Will that answer the question requirement?2. Why the answer says working capital investment policy refers to the level of investment in CURRENT ASSETS instead of saying the level of investment in WORKING CAPITAL (current assets less current liabilities)? Is the current liabilities not relevant?
1. Yes, that would be OK.
2. Strictly working capital is current assets less current liabilities. However current liabilities are a way of funding the current assets (although it is much more important when there is an overdraft as part of current assets rather than just payables).
Thank you
If the question asks to discuss about the working capital investment policy (aggressive, conservative, moderate), do we discuss the about the level of investment in current assets (eg receivables and inventories) only and do not need to talk about current liabilities (eg payables)?
And what is a moderate approach in working capital investment policy? I have never seen it anywhere, your lectures or answers given in ACCA?
Based on my understanding, both working capital investment policy and working capital funding policy have aggressive, conservative and MODERATE approach
It is primarily the investment in the current assets.
A moderate approach is not a standard term but is what I describe in my lectures as a sensible policy – funding permanent working capital from long-term borrowing and temporary working capital from short-term borrowing.
Yes, I understand your reply but that is about moderate approach in working capital FUNDING policy? Your lectures have that and I had watched it 🙂
What I meant was regarding the MODERATE approach in working capital INVESTMENT policy. It was never mentioned anywhere, not even in ACCA questions and answers etc
So I wonder if it is correct to say that,
“Moderate approach in working capital investment policy strikes a balance between liquidity and profitability by not holding too much or too little working capital so that the objective of working capital management is achieved”?
- The topic ‘March/July 2020 – Pumice Co (Working capital policy)’ is closed to new replies.