The requirement here was to discuss the similarities and differences between working capital investment policy and working capital financing policy. Many answers struggled to gain good marks with this question, and yet the topics of working capital investment policy (the level of investment in current assets) and working capital financing policy (the balance between short-term and long-term funds in financing current assets) have been examined a number of times in recent years.

Some answers ignored the words “working capital” and “policy”, and discussed investment and financing in some detail. These answers did not offer what was being looked for and, for example, discussed investment appraisal techniques (investment) and equity, bonds and leasing (financing). If you look at the question as a whole, you will see that it focuses on that part of the syllabus relating to working capital.

While many answers showed good understanding of working capital financing policy, fewer answers showed understanding of working capital investment policy, and fewer answers still could discuss the similarities and differences between the two policy areas. Both policies are characterised by an assessment of their risk (conservative, moderate or matching, and aggressive), but working capital investment policy is comparative (one company is conservative or aggressive compared to another), while working capital financing policy looks only at the long-term/short-term finance balance in a given company (for example, using mainly short-term financing for permanent current assets is an aggressive policy).

Many answers seemed to be unaware that it is possible for an aggressive working capital investment policy to occur in a given company at the same time as a conservative working capital financing policy, and vice versa. These answers assumed that a company was either aggressive in both kinds of policy, or not, for example.