Asked by Arlisa Flores on Jul 07, 2024
Verified
The optimal current asset holdings are higher under a flexible policy than under a restrictive policy.
Optimal Current Asset Holdings
Refers to the ideal mix of cash and other current assets a company maintains to meet its operational and investment needs effectively and efficiently.
Flexible Policy
A strategy or approach that can be adjusted easily in response to changing circumstances, often applied in economic or business contexts.
- Appreciate the influence of short-term financial tactics on an enterprise's liquidity and daily operations.
- Identify factors affecting the optimal level of current assets and short-term financial strategies.
- Examine the differences between restrictive and permissive short-term financial strategies.
Verified Answer
SA
Shukurat AmoleJul 08, 2024
Final Answer :
True
Explanation :
A flexible policy involves maintaining higher levels of current assets relative to liabilities, which provides greater liquidity and reduces the risk of financial distress, but may lower profitability. A restrictive policy, on the other hand, minimizes holdings of current assets to increase profitability but comes with higher liquidity risk.
Learning Objectives
- Appreciate the influence of short-term financial tactics on an enterprise's liquidity and daily operations.
- Identify factors affecting the optimal level of current assets and short-term financial strategies.
- Examine the differences between restrictive and permissive short-term financial strategies.
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