Conservative Working Capital Policy

Conservative Working Capital Policy. Longterm financing = Noncurrent Assets + Permanent Working Capital + Part of Temporary Working Capital Shortterm financing = Part of Temporary Working Capital Advantages and disadvantages The advantages of a conservative approach are the lowest reinvestment and interest rate risk among the other working capital financing strategies.

Broadly three strategies can help optimise working capital financing for a business namely hedging aggressive and conservative as per the risk levels involved 1 Conservative Policy An organisation undertakes this strategy only when it requires minimising risk to the furthest Under this policy the management regulates the credit limits stringently to ensure low.

Working Capital Policy: Aggressive & Defensive

What is conservative financing policy? Conservative approach is a riskfree strategy of working capital financing A company adopting this strategy maintains a higher level of current assets and therefore higher working capital also So the risk associated with shortterm financing is abolished to a great extent.

INDUSTRY PRACTICE RELATING TO AGGRESSIVE …

The working capital policy of a firm is called a conservative policy when all or most of the working capital needs are met by the long term sources and thus the firm avoids the risk of insolvency So under the conservative approach the working capital is primarily financed by long term sources The larger the portion of long term sources used.

Working Capital Funding aCOWtancy

The Conservative approach is a riskfree strategy of working capital financing A company adopting this strategy maintains a higher level of current assets and therefore higher working capital also The major part of the working capital is financed by the longterm sources of funds such as equity debentures term loans etc So the risk associated with shortterm.