Discuss the effect of this revenue increase on the firm’s working capital policy.

Fin/419 fin 419 fin419 week 4 – learning team assignment – working

An increase in revenue would generally have a positive effect on a firm’s working capital policy. This is because an increase in revenue means that the company has more money to work with, which can be used to finance operational expenses, pay down debt, and/or invest in new projects. Additionally, increased revenues can also allow companies to become more flexible with their existing working capital policies. For example, if there is sufficient cash flow coming into the business then it may no longer need to rely as heavily on short-term financing solutions such as lines of credit or accounts receivable financing; instead they may be able to rely mostly on internally generated funds for day-to-day operations.

Finally, increased revenues can help create a buffer against economic downturns—this is especially important when it comes to businesses operating in volatile industries where sudden changes are common. A larger amount of liquid assets allows companies more flexibility when responding to changing market conditions and gives them greater access to resources should unexpected costs arise. All these factors demonstrate how an increase in revenue can positively affect a firm’s working capital policy by providing much needed financial security and stability.