What are the current asset financing strategies that firms adopt?

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.

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

A) Maturity matching approach

B) Conservative approach

C) Aggressive approach

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.

A) Maturity matching approach

B) Conservative approach

C) Aggressive approach

Long-term capital finances some of the permanent current assets, but short-term debt finances all temporary current assets and some permanent assets.

A) Aggressive approach

B) Conservative approach

C) Maturity matching approach