A working capital policy is called an aggressive policy if the firm decides to finance a part of the permanent working capital by short term sources. The firm may accept even greater risk of insolvency in order to save cost of long term financing and thus in order to earn greater return. …

Which of the following working capital strategies is the most aggressive?

Which of the following working capital strategies is the most aggressive? Making greater use of short term finance and maximizing net short term asset.

What are the most commonly followed working capital policies?

The working capital policy of a company refers to the level of investment in current assets for attaining their targeted sales. It can be of three types viz. restricted, relaxed, and moderate. Commonly, these policies are also named as aggressive, conservative and hedging policy.

What are working capital strategies?

Working capital management is a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to the best effect.

What are the working capital strategies?

There are three strategies or approaches or methods of working capital financing – Maturity Matching (Hedging), Conservative and Aggressive. Hedging approach is an ideal method of financing with moderate risk and profitability. liquidity, profitability, risk, asset utilization, and working capital.

How does an aggressive working capital investment policy work?

Aggressive working capital financing policy is a risky policy that requires maximum amount of invest­ment in current assets. Fluctuating as well as permanent current assets under this policy will be financed through short-term debt. In this policy debt is collected on time and payments to the creditors are made as late as possible.

What do you mean by Working Capital Management Policy?

Working capital management policy is the firm’s way making an investment in their current assets which is known as working capital investment policy (AIP) and use short-term debt to finance firms’ assets which is known as working capital financing policies 9.

How does a conservative working capital financing policy work?

A conservative working capital financing policy has the least reinvestment and interest rate risk. It maintains the highest liquidity level and has funds ready when needed without the need to resort to additional outside borrowings. Financing of temporary working capital with long-term funds results in increased interest costs when funds are idle.

How does a firm finance its working capital needs?

One of the policies by which a firm finances its working capital needs is the hedging policy, also known as matching policy. This policy works in an arrangement where the current assets of the business are used perfectly to match the current liabilities.