Which of the following strategy belongs to restrictive policy regarding size of investments in current assets?
Correct answer: B. To maintain a low ratio of current assets to sales
- A. To maintain a high ratio of current assets to sales
- B. To maintain a low ratio of current assets to sales
- C. To less short-term debt and more long-term debt
- D. To more short-term debt and less long-term debt
Explanation
A restrictive current-asset policy keeps relatively few current assets, producing a low current-assets-to-sales ratio. This can improve returns but increases liquidity risk.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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