Essay: Aggressive Financing Strategy

Sample Essay

The aggressive financing strategy is based on hedging or matching which means that company requirements are matched with financing options available. In an aggressive strategy permanent requirements are funded by long term financing and temporary requirements are funded by short term financing. The conservative strategy of financing on the other hand applies long term financing for funding all requirements of a company. The temporary requirements are entirely ignored under this strategy as total requirements are funded by long term financing.

The company estimates the highest level of total requirements in a specific month in an upcoming year and an amount equal to this level is acquired at a long term rate. These funds will cater to the monthly requirements of the company for the whole year as the company has financed the maximum level of monthly requirement. The application of both aggressive and conservative strategies have been described in section C and D and it can clearly be identified that the total cost of financing under the conservative strategy is much higher than the total cost of financing calculated under the aggressive strategy. This is mainly due to the fact that the conservative strategy employs a higher rate of financing for the total requirements whereas the aggressive strategy applies different rates of financing for temporary and permanent requirements.

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