Are the methods to reduce the investment in current assets applicable to every organization? OR are some methods only suitable for organizations with specific characteristics?
Solution
No, All the organizations cannot use the same method of reducing current assets. It is the business line and nature of business that determines the amount of current assets to be invested in. A manufacturing organization need very high amount of inventory so it can reduce inventory level and save on investment in current assets. A service organization has little or no inventory so it cannot reduce any inventory and have to find other way out to reduce current assets.
Therefore, the method to reduce current assets depend upon characteristics of the firm and it is not common to all.
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Are the methods to reduce the investment in current assets applicable (1).docx
1. Are the methods to reduce the investment in current assets applicable to every organization? OR
are some methods only suitable for organizations with specific characteristics?
Solution
No, All the organizations cannot use the same method of reducing current assets. It is the
business line and nature of business that determines the amount of current assets to be invested
in. A manufacturing organization need very high amount of inventory so it can reduce inventory
level and save on investment in current assets. A service organization has little or no inventory
so it cannot reduce any inventory and have to find other way out to reduce current assets.
Therefore, the method to reduce current assets depend upon characteristics of the firm and it is
not common to all.
