Too much investment in current assets reduces firm profitability, whereas too little investment in current assets increases the risk of not being able to pay debts as they come due.

Question

Quizplus · Accepted Answer

This statement is true. Current assets, such as inventory and accounts receivable, require investment from the firm. However, if a firm invests too much in these assets, it can tie up capital and reduce profitability. On the other hand, if a firm invests too little in current assets, it can face difficulty in paying debts and other obligations as they come due. Thus, finding a balance between investment in current assets and profitability/risk is crucial for a firm's success.

Too Much Investment in Current Assets Reduces Firm Profitability, Whereas