Aggressive financing policies invest a company's assets to try and gain the highest rate of return on the investment. Unlike safer and more conservative strategies, they accept that maximizing returns involves an increased level of risk. They often call for a company to finance operations by using less expensive short-term funds with more volatility.
An aggressive financing strategy implies a firm will finance part of its permanent assets and all its current assets using short-term funds. This is in contrast to matching or conservative financing. Matching uses long-term funds to finance permanent current assets and short-term funds to finance temporary, current assets. A conservative financing strategy puts all the permanent and some of the temporary assets in long-term, stable funds.
An aggressive financing policy gives a company benefits in profitability. Short-term funds are less expensive to purchase across the board, so funding costs can be lower.
The downside of an aggressive financing policy is that it seldom yields the high profitability being sought. Instead, some studies have found an inverse relationship between aggressiveness and profitability. This policy also creates the greatest risk of lack of liquidity.
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