Which of the following is the effect of a conservative working capital policy?

Which of the following is the effect of a conservative working capital policy?

A conservative working capital policy has the potential to increase profits but face a high liquidity risk. Conversely, an aggressive working capital policy has the potential to reduce profitability but has a low liquidity risk.

Is it better to be aggressive or conservative in managing working capital?

More aggressive working capital policies are associated with higher return and higher risk while conservative working capital policies are concerned with the lower risk and return (Gardner et al. 1986, Weinraub and Visscher, 1998).

What would be consistent with a conservative approach to financing working capital?

Which of the following would be consistent with a conservative approach to financing working capital? Your Answer:Financing short-term needs with short-termfunds. Correct Answer:Financing short-term needs with long-termdebt.

What is a conservative financing strategy?

Conservative investing prioritizes preserving the purchasing power of one’s capital with the least amount of risk. Conservative investment strategies will typically include a relatively high weighting to low-risk securities such as Treasuries and other high-quality bonds, money markets, and cash equivalents.

What is a conservative capital structure?

Companies that use more debt than equity to finance their assets and fund operating activities have a high leverage ratio and an aggressive capital structure. A company that pays for assets with more equity than debt has a low leverage ratio and a conservative capital structure.

What is the difference between aggressive and conservative approach?

The Conservative approach is highly conservative with very low risk and, therefore, low profitability. An aggressive approach is highly aggressive, having high risk and high profitability.

How the conservative approach of working capital policy differ from hedging approach?

The hedging approach implies low cost, high profit and high risk while the conservative approach leads to high cost, low profits and low risk. Both the approaches are the two extremes and neither of them serves the purpose of efficient working capital management.

What is the conservative approach to working capital management?

The Conservative approach is a risk-free strategy of working capital financing. A company adopting this strategy maintains a higher level of current assets and, therefore, higher working capital. The long-term sources of funds, such as equity, debentures, term loans, etc., finance the major part of the working capital.

What are conservative policies?

They advocate low taxes, free markets, deregulation, privatization, and reduced government spending and government debt. Social conservatives see traditional social values, often rooted in religion, as being threatened by secularism and moral relativism.

What do you mean by conservative current asset policy?

A conservative policy depicts high level of liquidity and lesser risk; whereas an aggressive policy depicts higher risk and low level of liquidity. The current assets practices of the majority of companies possibly will fall between these two extreme policies.

What is conservative capital structure?

What are the main beliefs of conservatives?

What is conservative in accounting?

Accounting conservatism is a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.

What are the conservative principles?

7 Core Principles of Conservatism

• Individual Freedom. The birth of our great nation was inspired by the bold declaration that our individual,God-given liberties should be preserved against government intrusion.
• Limited Government.
• The Rule of Law.
• Peace through Strength.
• Fiscal Responsibility.
• Free Markets.
• Human Dignity.

What is conservatism concept with example?

The conservatism or prudence principle in accounting is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty. Put simply, it states that you should always err on the most conservative side and record uncertain losses and expenses, but not record uncertain gains.

What is conservative principle?

The conservatism principle is the general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about the outcome, but to only recognize revenues and assets when they are assured of being received.

What is an example of conservatism in accounting?

Examples of Accounting Conservatism For example, a company that expects to win litigation is obliged to meet all the requirements of revenue recognition before it reports the gains. However, the company must record the economic loss if it expects to lose a lawsuit.