Process of financing working capital, Financial Management

Assignment Help:

Q. Process of financing working capital?

Working capital policies on the process of financing working capital can be characterised as moderate, conservative and aggressive. A conservative funding policy would involve financing working capital needs predominantly from long-term sources of finance. If current assets are examined into permanent and fluctuating current assets a conservative policy would use long-term finance for permanent current assets and some of the fluctuating current assets.

Such a policy would raise the amount of lower-risk finance used by the company at the expense of increased interest payments and lower profitability. Velm plc is obviously not pursuing a conservative financing policy since long-term debt only accounts for 2·75% (40/1450) of non-cash current assets. Somewhat it seems to be following an aggressive financing policy characterised by short-term finance being used for all of fluctuating current assets and most of the permanent current assets as well. Such a policy will reduce interest costs and increase profitability but at the expense of an increase in the amount of higher-risk finance used by the company.

Between these two boundaries in policy terms lies a moderate or matching approach where short-term finance is used for fluctuating current assets and long-term finance is used for permanent current assets. This is an appearance of the matching principle which holds that the maturity of the finance should match the maturity of the assets.


Related Discussions:- Process of financing working capital

Case Let 2, How would you judge the potential profit of Bajaj Electronics o...

How would you judge the potential profit of Bajaj Electronics on the first year of sales to booth Plastics and give your views to increase the profit?

Explain in detail about the cost of capital, Explain in detail about the Co...

Explain in detail about the Cost of Capital Every type of capital used by the firm (preference shares, debt and equity) must be incorporated into the cost of capital, with rela

Assignmment, what is logical process modelling? what is physical modelling?...

what is logical process modelling? what is physical modelling?

CAPM, Techiniques of capm Effects of capm

Techiniques of capm Effects of capm

Cash flow yield, In structured products like mortgage-backed and asse...

In structured products like mortgage-backed and assets-backed securities, the cash flows include both principal repayment and interest. The complication arises wh

Explain about the non-convertible debentures, Expalin about the Non-Convert...

Expalin about the Non-Convertible Debentures (NCDs) NCDs are plain debenture securities issued by corporations. They are normally medium term in nature, maturing between 1 to 8

Definition of financial management, DEFINITION OF FINANCIAL MANAGEMENT ...

DEFINITION OF FINANCIAL MANAGEMENT Financial Management is a stream concerned with the generation and allotment of scarce resources (generally funds) to the most proficient use

Cost control strategies in organisations, 1. List the common elements of a ...

1. List the common elements of a submission for a major resource acquisition (purchase) 2. What is the difference between: A fixed asset and current asset? 3. If you worked i

Benefit and drawback of maintaining many manufacturing sites, Discuss the b...

Discuss the benefits and drawbacks of maintaining multiple manufacturing sites like a hedge against exchange rate exposure. Answer:  To set up multiple manufacturing sites can

Cost of retained earning, Cost of Retained Earning: - It is on occasion arg...

Cost of Retained Earning: - It is on occasion argued that retained earnings carry no cost since a firm isn't required to pay dividend on retained earnings. Nevertheless this isn't

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd