Financing current assets What are the current asset financing strategies that firms adopt? Firms merage a variety of current assets. Permanent current assets are needed for the firm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets function seasonally or with business cycles. Each firm must devise a financing strategy that best its business situation and best manages its risk. Use the following table to identify the different current asset financing policies. Description Some portion of faud assets and the fixed assets and the nonsessonal portion of current assets are financed with long-term capital, and all seasonal needs of current assets and the remaining portion of fixed assets are financed with short -term loans. Long-term capital finances at permanent current assets and some temporary financing needs. All fixed assets and the nonsessonal portion of current assets are financed with long-terms capital, and sessonal needs of current assets are financed with short-term loans. Solution Answer: A firm needs fixed assets and current assets to support a particular level of output. There are three type of Current Assets Financing Strategies / Policies: (i) Conservative Policy --- Under this policy a portion of current assets are financed with short term sources. Other portion of temporary current assets, parmanend current assets and fixed assets are financed by long term sources. (ii) Aggresive Policy -- In this policy a firm will finance parmaned current asset and all temporaty current assets with short-term sources. Other portion of permanent assets and fixed assets are financed by long term source. (iii) Moderate Policy (Maturity Matching Approach) --- In this policy, parmanend current assets and fixed assets are financed by long term sources and temporary current assets are financed by short term sources. By applying above policies, we can give answer as follows: Some portion of fixed assets and the non-seasonal portion of current assets (i.e. permanent current assets) are financed with long term capital, and all seasonal needs of current assets and the remaining portion of fixed assets are financed with short term loans. ----- Aggressive Policy Long term capital finances all permanent current assets and some temporary financing needs ---- Conservative Policy All fixed assets and the non seasonal portion of current assets (i.e. Permanent Current Assets) are financed with long term capital and seasonal needs of current assets (temporary) are financed with short term source ------- Maturity Matching Approach.

1. Financing current assets What are the current asset financing strategies that firms adopt? Firms
merage a variety of current assets. Permanent current assets are needed for the firm to maintain
its business, and they will be carried even through downturns in business cycles. Temporary
current assets function seasonally or with business cycles. Each firm must devise a financing
strategy that best its business situation and best manages its risk. Use the following table to
identify the different current asset financing policies. Description Some portion of faud assets
and the fixed assets and the nonsessonal portion of current assets are financed with long-term
capital, and all seasonal needs of current assets and the remaining portion of fixed assets are
financed with short -term loans. Long-term capital finances at permanent current assets and
some temporary financing needs. All fixed assets and the nonsessonal portion of current assets
are financed with long-terms capital, and sessonal needs of current assets are financed with
short-term loans.
Solution
Answer:
A firm needs fixed assets and current assets to support a particular level of output.
There are three type of Current Assets Financing Strategies / Policies:
(i) Conservative Policy --- Under this policy a portion of current assets are financed with short
term sources. Other portion of temporary current assets, parmanend current assets and fixed
assets are financed by long term sources.
(ii) Aggresive Policy -- In this policy a firm will finance parmaned current asset and all
temporaty current assets with short-term sources. Other portion of permanent assets and fixed
assets are financed by long term source.
(iii) Moderate Policy (Maturity Matching Approach) --- In this policy, parmanend current assets
and fixed assets are financed by long term sources and temporary current assets are financed by
short term sources.
By applying above policies, we can give answer as follows:
Some portion of fixed assets and the non-seasonal portion of current assets (i.e. permanent
current assets) are financed with long term capital, and all seasonal needs of current assets and
the remaining portion of fixed assets are financed with short term loans. ----- Aggressive Policy
Long term capital finances all permanent current assets and some temporary financing needs ----
Conservative Policy
All fixed assets and the non seasonal portion of current assets (i.e. Permanent Current Assets) are
financed with long term capital and seasonal needs of current assets (temporary) are financed
with short term source ------- Maturity Matching Approach