An aggressive working capital policy would have which of following characteristics?
A. A low ratio of short-term debt to fixed assets.
B. A high ratio of short-term debt to long-term sources of funds.
C. A short average collection period.
D. A high ratio of long-term debt to fixed assets.
would it be D
?
No, the correct answer is C. An aggressive working capital policy would have a short average collection period.
To determine the correct answer, let's go through each option and understand the characteristics of an aggressive working capital policy:
A. A low ratio of short-term debt to fixed assets: This option suggests a conservative working capital policy rather than an aggressive one. In a conservative policy, a company relies more on long-term debt and less on short-term debt to finance its fixed assets. So A is not the characteristic of an aggressive working capital policy.
B. A high ratio of short-term debt to long-term sources of funds: This option suggests that the company relies heavily on short-term debt to finance its operations, even if it has long-term sources of funds available. This higher use of short-term debt may indicate an aggressive working capital policy, as short-term debt can provide more flexibility and can be used to take advantage of short-term opportunities. Therefore, B could be a characteristic of an aggressive working capital policy.
C. A short average collection period: This option refers to the amount of time it takes for a company to collect its accounts receivable. A short average collection period indicates that the company collects its receivables quickly, which can be a sign of an aggressive working capital policy. Therefore, C could be a characteristic of an aggressive working capital policy.
D. A high ratio of long-term debt to fixed assets: This option suggests that the company relies more on long-term debt to finance its fixed assets, indicating a more conservative working capital policy, rather than an aggressive one. So D is not a characteristic of an aggressive working capital policy.
Based on the analysis above, both options B and C (A high ratio of short-term debt to long-term sources of funds, and a short average collection period) could be characteristics of an aggressive working capital policy. Therefore, the correct answer could be either B or C, depending on the specific context of the question.
No, an aggressive working capital policy would not have a high ratio of long-term debt to fixed assets (option D). An aggressive working capital policy typically strives to minimize the amount of working capital and liquidity in a business to maximize returns.
The correct answer is option B: A high ratio of short-term debt to long-term sources of funds. This means that the company is relying heavily on short-term debt, such as bank loans or lines of credit, to finance its operations instead of long-term sources of funds like equity or bonds. This can be an indication of a more aggressive or risky approach to managing working capital.