Read 1st slide

A company use working capital (CA AND CL) to meet the needs of the organizations to perform
operational activities

2nd slide

It refers to the level of investment in current assets for attaining their targeted sales. This policy is
made because a company needs to closely monitor its working capital to achieve optimal results; keep
costs under control and to keep risk level at an appropriate level.

There are 3 types which are restricted, relaxed and moderate

3rd Slide, restricted

Under a restrictive policy (also referred to as an 'aggressive policy'), the investment in current assets is
low. • This means that the firm keeps a small balance of cash and marketable securities, manages with
small amounts of inventories, and offers stiff terms of credit which leads to a low level of debtors.

the estimation of current assets for achieving targeted revenue is done very aggressively without
considering for any contingencies and provisions for any unforeseen event. After deciding, these
policies are forcefully implemented in the organization without tolerating any deviations.

Adopting this policy would result in an advantage of the lower working capital requirement due
to the lower level of current assets. This saves the interest cost to the company and which in turn
produces higher profitability i.e. higher return on investment (ROI).

What dictates the investment policy to be employed in a company?

Working capital decisions are like breaths. It is

more important for short term existence. But
scarcity of proper funds and abundance of it both
are harmful for the general health of business.
So it all boils down to the implementation of an
investment policy to the company and its
requirements which are shown/presented in the
screen.
First, ask: What do we hope to accomplish with our investment policy? General objectives stated
in your policy should address return, spending rate and risk.

Your policy also should address investment constraints, such as liquidity and time horizon. Does
your organization, for instance, rely on investments to “throw off” a certain percentage of
income each year to meet spending needs for operations

Additionally, your policy should state how you’ll measure performance. Outline how
benchmarks will be developed and compared to actual performance, both in the areas of risk and
return.

Give asset allocation special attention, because it’s one of the most important decisions your
investment committee can make

Be sure to review and revise your allocation strategies regularly. Because diversifying across
industries, geographic areas and types of assets reduces risk. Certain types of assets, such as
fixed-income securities (for example, Treasury bills) are less volatile, while others such as
equities are considered a source of long-term growth.

Include in your policy how frequently your investment team should rebalance the portfolio to
realign with your investment allocation.

And also factors, such as

A delegation of responsibilities and authority. Detail the expectations for, and functions of, the
general board, investment committee, investment advisors, managers and custodians, and specify
how brokers and advisors will be selected.

A conflict of interest statement. Written disclosure of any conflicts should be required. The
investment committee can ask those with a conflict to excuse themselves from voting on
investment decisions.

The investment process. Outline how investment information will be monitored and
communicated.

A formal procedure for revising the policy. State how often the policy will be reviewed and
amended. What changes will require board approval?

Your formal investment policy should be designed to support your organization as it moves
forward. Be sure to review it with your CPA and your attorney to ensure your policy meets all
legal and reporting requirements.