Question

There are three approaches to managing working capital – Aggressive, Conservative, and Balanced. Briefly explain the differences between these approaches. If your business’s sales are very volatile, which approach would be best and why?

Answer 1

There are three ways of managing working capital-

A. Aggressive approach of managing working capital is focused at managing extensive use of short term credit in order to maximize the overall rate of return.

B.conservative approach of management of working capital is focused at use of long term loans for the management of working capital because that will help the management in payment of the working capital in longer periods.

C. Balanced approach of managing working capital is focused at use of short term as well as Long term capital in a balanced manner for management of the working capital.

The process are focused at management of working capital through short term, long term or combination of both. These measure are focused at management of working capital in order to have liquidity and flexibility in the hands of the management and extensive growth of the company.

If sales of the company are very volatile in nature, then company should be conservative in nature and this should have an approach of conservative Working Capital Management by use of long term loans which will help the company in management oof working capital in a better way because sales are not uniform in nature