What are the current asset financing strategies that firms adopt? a. Firms manage a variety of current assets. Permanent current assets are needed for the firm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing strategy that best fits its business situation and best manages its risk. Use the following table to identify the different current asset financing policies. Long-term capital finances all permanent current assets and some temporary financing needs. Conservative approach Maturity matching approach Aggressive approach b. All fixed assets and the nonseasonal portion of current assets are financed with long-term capital, and seasonal needs of current assets are financed with short-term loans. Conservative approach Aggressive approach Maturity matching approach c. Some portion of fixed assets and the nonseasonal portion of current assets are financed with long-term capital, and all seasonal needs of current assets and the remaining portion of fixed assets are financed with short-term loans. Aggressive approach Conservative approach Maturity matching approach

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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What are the current asset financing strategies that firms adopt?

a. Firms manage a variety of current assets. Permanent current assets are needed for the firm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing strategy that best fits its business situation and best manages its risk.

Use the following table to identify the different current asset financing policies.

Long-term capital finances all permanent current assets and some temporary financing needs.

Conservative approach

Maturity matching approach

Aggressive approach

b. All fixed assets and the nonseasonal portion of current assets are financed with long-term capital, and seasonal needs of current assets are financed with short-term loans.

Conservative approach

Aggressive approach

Maturity matching approach

c. Some portion of fixed assets and the nonseasonal portion of current assets are financed with long-term capital, and all seasonal needs of current assets and the remaining portion of fixed assets are financed with short-term loans.

Aggressive approach

Conservative approach

Maturity matching approach

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