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
Illustrate the role of credit unions in depository institutions. Credit unions: Credit unions are non-profit institutions equally organised and owned through their member

Advantage of Joint Stock Companies The company can own assets and incur liabilities on its own accord. Perpetual existence as or going to relate that allows the compan

how ca i calculate the common stock dividends in the income statement if it is not mentioned

Describe how society's interests can influence financial managers. Occasionally the interests of a business firm's owners are not similar as the interests of society.  For exam

Bird-in-hand Theory Advanced via John Leitner in year 1962 and furthered with Myron Gordon in year 1963. Argues such shareholders are risk averse and prefer specific. Dividend

"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

What are some good examples of C.O.L.A?

Example of Quantity Discounts Consider illustration one and suppose that a quantity discount of 5 percent is given whether a minimum 200 units is ordered. Required Fin

Constant amount per share or fixed D.P.S. 1. The DPS is fixed in total amount of irrespective of the earnings level. These generate certainty and are consequently preferred vi

Advantages of Overdraft Finance 1. It is useful in financial crisis such an accountant cannot forecast because of abrupt fall in profits so liquidity problems. 2. In