Firms manage a variety of current assets. Permanent current assets are necessary

Question

Firms manage a variety of current assets. Permanent current assets are necessary for firms to maintain their businesses, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Firms must devise a financing strategy that best fits their business situation and that best manages their risk. Use the following table to identify the different current asset financing policies. Description Financing Policy Long-term capital finances all fixed assets and the nonseasonal portion of current assets, as well as seasonal needs of current assets Long-term capital finances all fixed assets and the nonseasonal portion of current assets, and short-term loans finance seasonal needs of current assets. Long-term capital finances some permanent current assets, but short-term debt finances all temporary current assets and the remaining permanent current assets Suppose a firm occasionally faces demand for short-term credit but usually has an excess of short-term capital to finance current assets. Which approach is the firm following? Maturity matching approach Conservative approach O Aggressive approach Flash Player WIN 27,0,0,187

Explanation / Answer

1. Conservative approach

2. Maturity Matching approach

3. Agressive approach

In this case as the firm usually have excess of short term finance and ocassionally faces demand for short term credit it means the firm is following Agressive approach (firm is using short term credit which we use in Agressive approach).

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