The management of current assets is a trade-off between ____________.

Risk and Return

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Liquidity and Profitability

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Current ratio and current assets turnover ratio.

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Both (A) and (B) above

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Both (B) and (C) above

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Solution

The correct option is B Liquidity and Profitability
In view of the uncertainty / risk the quantum of investment in current assets has to be made in a manner that not only meets the needs of the forecasted sales but also provides a build in cushion in the form of safety stocks to meet unforeseen contingencies. The larger the amount of investment in current assets the smaller will be the amount available for investment to the company. Hence, the objective would be a trade -off between profitability and liquidity.

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Similar questions

A ___ Working capital turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales.

Q. 98. Consider the following statements
1. Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.
2. The risk weighted assets take into account credit risk, market risk and operational risk.
Which of the above statement(s) is/are correct?

Q. From the following calculate:

(a) Current Ratio; and
(b) Working Capital Turnover Ratio.

		₹
(i)	Revenue from Operations	1,50,000
(ii)	Total Assets	1,00,000
(iii)	Shareholders' Funds	60,000
(iv)	Non-current Liabilities	20,000
(v)	Non-current Assets	50,000

(a) Current Liabilities of a Company are Rs. 3,50,000. Its current ratio is 3 : 1 and acid test ratio is 1.75 : 1. Calculate the value of Current assets, Liquid assets and Inventories.

(b) Current Assets of a Company are Rs. 3,60,000. Its Current ratio is 2.4:1 and acid test ratio is 1.3:1. Calculate the value of Current liabilities, liquid assets and inventories.

(c) Working Capital of a company is Rs,30,000. Its Current ratio is 2.5:1. Calculate the value of (i) Current assets, (ii) Current liabilities, (iii) Acid test ratio, assuming inventories of Rs. 26,000.

Following is the Balance Sheet of Raj Oil Mills Limited as at March 31, 2017. Calculate Current Ratio.

Particulars	(Rs)
I. Equity and Liabilities:
1. Shareholders’ funds
a) Share capital	7,90,000
b) Reserves and surplus	35,000
2. Current Liabilities
a) Trade Payables	72,000
Total	8,97,000
II. Assets
1. Non-current Assets
a) Fixed assets
Tangible assets	7,53,000
2. Current Assets
a) Inventories	55,800
b) Trade Receivables	28,800
c) Cash and cash equivalents	59,400
Total	8,97,000

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