BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Higher current ratio higher risk and higher profits
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Low current ratio higher risk and profits
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Higher equitably Lower risk and lower profits
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Lower equitably lower risk and higher profits
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Detailed explanation-1: -Working capital refers to excess of current assets over current liabilities. Higher current ratio, higher risks, higher profits indicates large scale operation thus require large working capital.
Detailed explanation-2: -If the working capital is higher it results in higher current ratio, higher risk and higher profits.
Detailed explanation-3: -A business with a higher working capital will also have a higher current ratio. yes business with higher working capital will have greater positive difference between current assets and current laibilites.
Detailed explanation-4: -If a company maintains high levels of working capital relative to long-term assets, there is a risk that growth will suffer. For example, a firm might decide not to invest in more-productive capacity, opting instead for maintaining a buffer level of working capital.
Detailed explanation-5: -A high working capital ratio means that the company’s assets are keeping well ahead of its short-term debts. A low value for the working capital ratio, near one or lower, can indicate that the company might not have enough short-term assets to pay off its short-term debt.