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    Alternative Strategies in Financing Working Capital

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    Charm Mendoza
    The document discusses different strategies for financing working capital assets that fluctuate seasonally. It describes three policies: the flexible financing policy finances peaks in assets with long-term debt and equity; the restricted financing policy finances valleys in assets with long-term financing; and the compromise policy finances the seasonally-adjusted average level of assets with long-term financing. There is no definitive best policy, and the choice depends on factors like maturity hedging, cash reserves, interest rates, financing costs and impacts on future sales.

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    Alternative Strategies in Financing Working Capital

    Uploaded by

    Charm Mendoza
    124 views16 pages
    The document discusses different strategies for financing working capital assets that fluctuate seasonally. It describes three policies: the flexible financing policy finances peaks in assets with long-term debt and equity; the restricted financing policy finances valleys in assets with long-term financing; and the compromise policy finances the seasonally-adjusted average level of assets with long-term financing. There is no definitive best policy, and the choice depends on factors like maturity hedging, cash reserves, interest rates, financing costs and impacts on future sales.

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    The document discusses different strategies for financing working capital assets that fluctuate seasonally. It describes three policies: the flexible financing policy finances peaks in assets with long-term debt and equity; the restricted financing policy finances valleys in assets with long-term financing; and the compromise policy finances the seasonally-adjusted average level of assets with long-term financing. There is no definitive best policy, and the choice depends on factors like maturity hedging, cash reserves, interest rates, financing costs and impacts on future sales.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    124 views16 pages

    Alternative Strategies in Financing Working Capital

    Uploaded by

    Charm Mendoza
    The document discusses different strategies for financing working capital assets that fluctuate seasonally. It describes three policies: the flexible financing policy finances peaks in assets with long-term debt and equity; the restricted financing policy finances valleys in assets with long-term financing; and the compromise policy finances the seasonally-adjusted average level of assets with long-term financing. There is no definitive best policy, and the choice depends on factors like maturity hedging, cash reserves, interest rates, financing costs and impacts on future sales.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    You are on page 1of 16

    ALTERNATIVE STRATEGIES IN FINANCING WORKING CAPITAL

    BROAD CATEGORIES OF ASSETS


    Long Term/ Fluctuating or Permanent Assets Seasonal Assets

    LONG TERM/ PERMANENT ASSETS


    -Portion of assets remain unchanged over the year.
    Property, Plant and Equipment

    Long term investments

    inventories, receivables, etc.,

    FLUCTUATING OR SEASONAL ASSETS


    -These are current assets that vary over the year due to seasonal or cyclical needs.
    inventories before Christmas (Christmas decors) School supplies during opening of classes Flowers during Valentines Day

    TOTAL ASSET REQUIREMENT OVERTIME

    Seasonal Variation

    Total Asset Requirement

    Assets
    General Growth in fixed assets and permanent Current assets

    DIFFERENT POLICIES FOR FINANCING CURRENT ASSETS


    Policy I Flexible Financing Policy

    Policy II Restricted Financing Policy

    Policy III Compromise Financing Policy

    POLICY I FLEXIBLE FINANCING POLICY


    -This involves the decision to finance the peaks of asset requirement with longterm debt and equity.

    FOR SCHOOL SUPPLIES FIRM:

    Rise

    Inventory and current asset


    Decline

    Sell

    Marketable Securities

    Reinvest

    POLICY I FLEXIBLE FINANCING POLICY


    Total Asset Requirement

    Seasonal Variation
    Long-term Debt and Equity
    General Growth in fixed assets and permanent Current assets

    Marketable Securities

    Time

    POLICY II RESTRICTED FINANCING POLICY


    -This involves the decision to finance the valleys or troughs of asset, with long term debt and equity.

    POLICY II RESTRICTED FINANCING POLICY Total


    Asset Requirement

    Short term Financing

    Seasonal Variation Pesos


    General Growth in fixed assets and permanent Current assets

    Long-term Debt and Equity

    Time

    POLICY III COMPROMISE FINANCING POLICY


    involves a firm financing the seasonally adjusted average level of asset demand with long term debt and equity.
    -This

    POLICY III COMPROMISE FINANCING POLICY

    Short term Financing

    Seasonal Variation Pesos


    General Growth in fixed assets and permanent Current assets Long-term Debt and Equity

    Marketable Securities
    Time

    Which Financing Policy Should be Chosen?

    There is no definitive answer.

    The following should be considered:


    Maturity Hedging Cash Reserves Relative Interest Rates

    Availability and Costs of Alternative Financing


    Impact on Future Sales

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