Exam-styleIntermediate
What are the three alternative current assets investment policies described in the chapter on Working Capital Management?
The three alternative current assets investment policies are: relaxed investment policy, restricted investment policy, and moderate investment policy. A relaxed policy involves holding large amounts of current assets, resulting in high levels of cash, receivables, and inventories. A restricted policy minimizes current asset holdings, while a moderate policy falls between the two extremes.
Key points
- Relaxed investment policy involves high levels of current assets and a liberal credit policy.
- Restricted investment policy minimizes current asset holdings, leading to higher asset turnover.
- Moderate investment policy balances between relaxed and restricted approaches.
Source:Fundamentals of Financial Management, Concise Edition· Working Capital Management· p. 556–587
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