You Care Bhd is operating in health industries, and it supplies medical grade gloves. The demand for its product during this movement control order (MCO) period due to Covid 19 has increased tremendously. Below is the current summarized statement of the financial position of You Care Bhd.

 

Additional information:

Before MCO period, the amount of its inventory, accounts receivable and cash are RM150,000, RM590,000 and RM690,000. The net fixed assets remain the same.

Required

1. Ascertain the working capital policy adopts by the company and its implication to the firm’s risk and return
2. Explain the risk return trade-off between liquidity and profitability in working capital environment.

Assets RM'000 Liabilities RM'000 Net fixed assets 1,500 Common equity 1,300 Inventories 400 10-year borrowings 800 Accounts receivable 750 Retained earnings 500 Cash 900 Short term debt 350 Account payables 600 3,550 3,550