Skip to content
Sign inRegister
ACCA exam results — Are you ready?Chat about it >>

Ask the Tutor ACCA FM

working capital

BBrian4y ago
The key trade-off that lies at the heart of working capital management is that between A Business stability and solvency B Debtors and creditors C Current assets and current liabilities D Liquidity and profitability sir the answer is D. but my answer is C ... reason is that the working capital formula is current assets less current liabilities .. so the key trade off lies between current assets and current liabilities .. secondly what do they mean by trade off sir thank you
John MoffatJohn MoffatTutor4y ago#1
D is the correct answer. Trade off means that when one is good the other is bad (or vice versa). Higher working capital means better liquidity but lower profitability, and vice versa.
BBrian4y ago#2
Sir why Is that when the working capital is high “The profit is low “ How could we come to that sense sir Thank you
John MoffatJohn MoffatTutor4y ago#3
Because the costs of holding higher levels of inventory and higher levels of receivables will be higher, and higher costs mean lower profits.
BBrian4y ago#4
Wow thank you sir I got to think a little wider Haha
John MoffatJohn MoffatTutor4y ago#5
You are welcome.
This topic is locked — no new replies.