16-1 What are some pros and cons of holding high levels of current assets in relation to sales?

Use the DuPont equation to help explain your answer.

DuPont equation is: ROE= Profit margin on sales X Total assets turnover X Leverage factor. a relaxed current assets investment policy means that relatively large amounts of cash, marketable securities and inventories are carried, and a liberal credit policy results in a high level of receivables. This policy minimizes operating problems, thus the impact on sales is minimized, however it results in a low asserted turnover because assets are increased, therefore, ROE is reduced.