Aggressive Financing Policies

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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.

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.

Strategy

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.

Benefits

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.

 

Risks

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.

 

References

About the Author

Rachel Murdock published her first article in "The Asheville Citizen Times" in 1982. Her work has been published in the "American Fork Citizen" and "Cincinnati Enquirer" as well as on corporate websites and in other online publications. She earned a Bachelor of Arts in journalism at Brigham Young University and a Master of Arts in mass communication at Miami University of Ohio.

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