The aggressive approach is a high-risk strategy of working capital financing wherein short-term finances are utilized not only to finance the temporary working capital but also a reasonable part of the permanent working capital.
Why do some managers adopt aggressive working capital financing policy?
A firm may adopt an aggressive approach with the company holds a relatively small proportion of its total assets in the form current assets or uses a relatively high proportion of short term debt. As a result, this policy will result from a higher profitability and a higher risk that the company.
What is conservative approach and aggressive approach?
Conservative approach is highly conservative with very low risk and therefore low profitability. An aggressive approach is highly aggressive having high risk and high profitability. … liquidity, profitability, risk, asset utilization, and working capital.
What are the different types of financing strategies?
- Cash Flow Planning. To create a cash flow plan, businesses must assess their assets, income and expenditure. …
- Investment Planning. Creating a smart investment plan is key to financial safety for businesses. …
- Dividend Strategy. …
- Capital Structure Planning.
What is an aggressive capital structure?
Aggressive and conservative levels of working capital sit at opposite ends of the spectrum. An aggressive policy means spending as much as possible to churn out products, move inventory and deliver services. With a conservative approach, money is being saved, and your business is buffered, somewhat, against risk.
What is conservative financing approach?
Conservative approach is a risk-free strategy of working capital financing. … The major part of the working capital is financed by the long-term sources of funds such as equity, debentures, term loans etc. So, the risk associated with short-term financing is abolished to a great extent.
What is the aggressive approach?
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. So, the short term financing under aggressive policy is more than the short term financing under the hedging approach.
What are the three working financing policies?
Broadly, three strategies can help optimise working capital financing for a business, namely, hedging, aggressive, and conservative, as per the risk levels involved.
What working capital strategies is the most aggressive?
Which of the following working capital strategies is the most aggressive? a) Making greater use of short term finance and maximizing net short term asset.
Is it better to be aggressive or conservative in managing working capital?
More aggressive working capital policies are associated with higher return and higher risk while conservative working capital policies are concerned with the lower risk and return (Gardner et al. … The Greater the investment in current assets, the lower the risk, but also the lower the profitability.
What are the best practices and tips for personal finance?
- Devise a budget. …
- Create an emergency fund. …
- Limit debt. …
- Use credit cards wisely. …
- Monitor your credit score. …
- Consider your family. …
- Pay off student loans. …
- Plan (and save) for retirement.
What is a good financial strategy?
Financial strategies are centered on acquiring capital, reducing cost of capital, making complex investment decisions through capital budgeting, financing and dividend decisions, capital structure, working capital strategies in terms of accounts receivables, inventory, cash management, etc.
What is early stage financing?
Early-stage investing funds the first three stages of a company’s development. It is divided into three distinct funding types: Seed funding (seed capital)—money provided to help an entrepreneur start a business. Start-up funding—money used to help a company develop products and start marketing those products.
What does capital structure represent?
Capital structure refers to a company’s use of debt and equity as a means of financing operations and purchasing assets. A company’s capital structure is helpful in understanding its current financial health, risk profile and compatibility with specific investment or acquisition strategies.
What is between conservative and aggressive?
Conservative investing is an investment strategy that involves a focus on lower-risk, predictable and stable businesses. … Aggressive stocks are higher-risk investments that can potentially produce higher returns than more conservative stocks, but also have equal potential for bigger losses.
What is capital structure and its determinants?
Capital structure refers to the way a firm chooses to finance its assets and investments through some combination of equity, debt, or internal funds. Similarly, the earnings per share will also increase if preference share capital is used to acquire assets. …