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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 profitabilitysir 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
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.
Sir why
Is that when the working capital is high“The profit is low “
How could we come to that sense sir
Thank you
Because the costs of holding higher levels of inventory and higher levels of receivables will be higher, and higher costs mean lower profits.
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