Financing Strategies :
Financing Strategies To what extent should current assets be financed by current liabilities?
Current liabilities have lower cost.
Long term liabilities have higher cost.
Permanent Financing :
Permanent Financing This is long term financing of fixed assets and the permanent portion of current assets.
Seasonal Financing :
Seasonal Financing This is short term financing of the temporary part of the assets.
Profits and Risk :
Profits and Risk Financing strategies balance profitability and risk.
Seasonal financing
Cheaper
higher risk of technical insolvency.
Permanent financing
more expensive
lower risk of technical insolvency.
Aggressive Strategy :
Aggressive Strategy Aggressive strategy
Short term financing for the seasonal funds requirement
long term financing for the permanent funds requirements.
Very low cost
High risk of technical insolvency.
Example: SO Embarrassing Pte Ltd :
Example: SO Embarrassing Pte Ltd Short term financing: $100,000
Long Term Financing: $72,000
Conservative Strategy :
Conservative Strategy Conservative strategy
Long term financing for both seasonal and permanent funds requirement.
Very high cost
Low risk of technical insolvency.
Example: SO Embarrassing Pte Ltd :
Example: SO Embarrassing Pte Ltd Long Term Financing: $172,000