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Approaches to Working Capital Financing - Aggressive, Conservative & Matching or hedging Approach
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Heena Malhotra
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U
Unacademy user
thank u so much mam and mam mko apki videos k bare m late pta chla aap itna acha explain krte ho
i want to clear one thing approaches of investment decision mein agressive app mein minimum investment in current assets karte hai na or financing decision mein agressive app mein entire financing current assets mein karte hai na?
Heena Malhotra
a year ago
investment ki thk h.. but financing ki approaches m humne baat karni h ki hum finance kha se krwaege, to Aggressive ke according hum sbhi ca ya hum kh skte h ca m investment kha se finance krwaege ?? Short term sources se.. or even aggresive approaches khti h Fixed Assets ka kuch part bhi short term sources se finance krwalo.. isliye ye approach risky h.. Lekin Kam costly h. ☺️☺️
Jyoti Mishra
a year ago
ok thankyou😊
H
Thank you ma’am it’s really helpful 😊
Heena Malhotra
a year ago
Welcome :) :)
maam is sensitivity analysis is important
plz tell if I am wrong?
Heena Malhotra
a year ago
☺️
  1. Management of Working Capital By Heena Malhotra


  2. Approaches to WC Financing Aggressive Approach Matching Approach Conservative Approach By Heena Malhotra


  3. 1. The Hedging or Matching Approach: o According to this approach, the maturity of sources of funds should match the nature of assets to be financed. This O This approach classifies the requirements of total o (i) Permanent or fixed working capital which is the minimum approach is, therefore, also known as 'matching approach' working capital into two categories: amount required to carry out the normal business operations. It does not vary over time. oi) Temporary or seasonal working capital which is required to meet special exigencies. It fluctuates over time.


  4. o The hedging approach suggests that the permanent working capital requirements should be financed with funds from long- term sources while the temporary or seasonal working capital requirements should be financed with short-term funds. By Heena Malhotra


  5. Estimated Total Investment in Current Assets of Company X For the Year2008 Temporaryor Seasonal Invest Permanentor Fixed Investments (i 45.000 45,000 45,000 45,000 45,000 5,000 45,000 45,000 45,000 45,000 45,000 45,000 Total Investmentsin Current Assets Month 5,400 5,000 3,700 3,000 1,000 January February March April May June July August September October November December 50,400 50,000 48,700 48,000 46,000 45,000 47,500 48,000 49,500 50,700 52,000 48,500 2,500 3,000 4,500 5,700 7,000 3,500 44,300 By Heena Malhotra


  6. o With reference to financing mix, the term hedging refers to a process of matching maturities of debt with the maturities of financial needs' By Heena Malhotra


  7. Approaches to WC Financing Aggressive Approach Matching Approach Conservative Approach By Heena Malhotra


  8. Conservative Approach o This approach suggests that the entire estimated investments in current assets should be financed from long-term sources and the short-term sources should be used only for emergency requirements By Heena Malhotra


  9. Estimated Total Investment in Current Assets of Company X For the Year2008 Temporaryor Seasonal Invest Permanentor Fixed Investments (i 45.000 45,000 45,000 45,000 45,000 5,000 45,000 45,000 45,000 45,000 45,000 45,000 Total Investmentsin Current Assets Month 5,400 5,000 3,700 3,000 1,000 January February March April May June July August September October November December 50,400 50,000 48,700 48,000 46,000 45,000 47,500 48,000 49,500 50,700 52,000 48,500 2,500 3,000 4,500 5,700 7,000 3,500 44,300 By Heena Malhotra


  10. O The distinct features of this approach are: (I) Liquidity is severally greater; o (ii) Risk is minimized; and (i) The cost of financing is relatively more as interest has to be paid even on seasonal requirements for the entire period. By Heena Malhotra


  11. Approaches to WC Financing Aggressive Approach Matching Approach Conservative Approach By Heena Malhotra