Day: February 1, 2025

If a company moves from a defensive working capital policy to an aggressive working capital policy, it should expect?

Select ONE answer:

1. Liquidity to decrease, whereas expected profitability would increase
2. Expected profitability to increase, whereas risk would decrease
3. Liquidity would increase, whereas risk would also increase
4. Risk and profitability to decrease

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > An aggressive policy implies financing long-term needs with short-term funds which would reduce liquidity but increase profitability due to the cheaper short-term debt relative to long-term debt: decreased liquidity = increased risk
2. Not correct
3. Not correct
4. Not correct

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