1. WORKING CAPITAL
MANAGEMENT- APPROACHES

2. Working Capital Financing Mix
Approaches to Financing
Mix
The Hedging or
Matching Approach
The Conservative
Approach
The Aggressive
Approach

3. The Hedging Approach
Hedging approach refers to a process of
matching maturities of debt with the
maturities of financial need . In this approach
maturity of source of fund should match the
nature of asset to be financed
This approach is also known as matching
approach.
The hedging approach suggests that the
permanent working capital requirement
should be financed with fund from long term
sources while the temporary working capital
requirement should be financed with short
term funds.

4. Hedging approach to asset financing
Fixed Assets
Permanent Current Assets
Total Assets
Fluctuating Current Assets
Time
Short-term
Debt
Long-term
Debt +
Equity
Capital

5. Conservative Approach
This approach suggested that the entire
estimated investments in current asset should
be finance from long term source and short
term should be use only for emergency
requirement
Distinct features of this approach
• Liquidity is greater
• Risk is minimized
• The cost of financing is relatively more as
interest has to be paid even on seasonal
requirement for the entire period

6. Conservative approach to asset financing
Fixed Assets
Permanent Current Assets
Total Assets
Fluctuating Current Assets
Time
Short-term
Debt
Long-term
Debt +
Equity
capital

7. Trade off between Hedging
and Conservative Approaches
• The hedging approaches implies low cost , high
profit and high risk while the conservative
approach leads to high cost , low profit , low risk
Both the approaches are the two extreme and
neither of them serve the purpose of efficient
working capital management
• A trade off between the two will then be an
acceptable approach , One way of determining
the trade off is by finding the AVG of maximum
and minimum requirement of current asset or
working capital

8. Aggressive Approach
• The aggressive approach suggests that the
entire estimated requirement of current
asset should be financed from short-term
sources and even a part of fixed asset
investment be financed from short - term
sources
This approach make the finance mix
• More Risky
• Less costly
• More Profitable

9. Aggressive approach to asset
financing
Fixed Assets
Permanent Current Assets
Total Assets
Fluctuating Current Assets
Time
Short-term
Debt
Long-term
Debt +
Equity
capital

10. THANK YOU