Conservative approach - financing current assets, Finance Basics

Conservative Approach - Financing Current Assets

An exact similar of asset life along with the life of the funds required to finance the asset may not be possible. A firm that follows the conservative approach depends more on long-term funds for financing needs.  Consequently, the firm, finances its permanent assets and a part of its temporary assets along with long-term funds. 

It should be notice that short-term funds are cheaper than long-term funds. Several sources of short-term funds like accruals are cost-free.  Still, short-term funds must be repaid during the year and so they are highly risky.  Through this in mind, we can seem the risk-return trade off of the three approaches:

  • The conservative approach is a low return-low risk approach. This is since the approach uses more of long-term funds such are now more expensive than short-term funds. These funds conversely, are not to be repaid during the year and are hence less risky.
  • The aggressive approach on another hand is a highly risky approach. Conversely it is a high return approach also for this reason is that it relies more on short-term funds which are less costly although riskier.
  • The matching approach is in between the life of the funds financing the assets and since it matches the life of the asset.
Posted Date: 1/31/2013 7:54:35 AM | Location : United States







Related Discussions:- Conservative approach - financing current assets, Assignment Help, Ask Question on Conservative approach - financing current assets, Get Answer, Expert's Help, Conservative approach - financing current assets Discussions

Write discussion on Conservative approach - financing current assets
Your posts are moderated
Related Questions

What are the tasks of a financial system? Three Tasks of a Financial System are as follows: 1. Decreasing transaction costs 2. Decreasing financial risk 3. Giving liqu

Example of Market Model Illustration: For the past five (5) years, the MPS and DPS for XYZ Ltd were follows as:   1998 Shs. 1999 Shs.

Investigate a recent company merger or take-over and: i)  Critically evaluate the means by which managers may determine the bid price in such acquisitions. (You should use the b

You are taking an investment in the common stock of Crisp's Cookware. The stock is expected to pay a dividend of $2.00 a share at the end of the year (D1=2.00). The stock has a bet

Dividend Policies and Decisions Dividend policy determines the division of earnings among payments to stock holder's ad re-investment in the firm.  Hence now it looks at the f

Define the term Placement - Methods of Floating New Issues Under this method, issue houses or brokers purchase the securities outright with the intention of placing them wi

Business Ethics - Objectives of Business Entity Connected to the question of social responsibility is the matter of business ethics.  Ethics are explained as the "standards of

"Managerial leadership considers that the focus of school leaders ought to be on functions, tasks and behaviours and if these functions are carried out competently the work of othe

Paper on Estate Planning (3–5 pages) Evaluate the tools commonly used in estate planning, including trusts, life insurance, and annuities. Compare the tools as to how they would a