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What are some strategies that financial managers can follow in managing their working capital accounts?

What are some strategies that financial managers can follow in managing their working capital accounts?

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Answer #1

Following strategies can be adopted by financial managers for working capital:

  1. Hedging strategy- It means we finance each debt with a debt having similar maturity. It means long term sources will be used to finance long-term assets only. This is a meticulous strategy.
  2. Conservative strategy- It means financing in such a way so that both risk and returns will be low. A part of temporary working capital will be will be financed by long term sources. It involves low liquidity, but interest cost is high.
  3. Aggresive strategy- This focusses on profitability. Risk involved is high but interest costs are low. Only long term funds are used to finance fixed assets and a part of temporary working capital. The remaining working capital is financed by short-term funds.
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