Question

If a company has a very risk averse, cautious manager, what is his/her approach to managing the working capital? (Include a discussion of the level of current assets vs. level of current liabilities that the cautious manager would hold).

Answer 1

cautious manager can hold very high level of working capital in order to have a very high level of liquidity to avoid any kind of liquidity concern.

risk averse company always prefers on holding a lot of cash as well as cash equivalent and some of the marketable securities because those kind of securities provide ample level of current assets to deal with any of periodic debt repayment schedule obligation.

high level of current asset would be helpful in maintaining high level of working capital as well .so that would help to deal with any kind of liquidity risk so the company can always honour their debt obligations and never default any have kind of insolvency risk.