ACCA FM Syllabus C. Working Capital Management - WC investment v Funding - Notes ^{3 / 5}

Working Capital Investment

You can compare this between companies

• Analyses current assets into permanent and fluctuating

  Permanent current assets represent the core level for a given level of business activity

  Fluctuating current assets represent changes due to the unpredictability of business operations e.g. Higher stock as demand less than predicted

• Uses Matching policy where long-term assets should be financed by long-term finance

  Can be Aggressive too. More short term finance used

  Can be Conservative too. More long term finance used

  It is more expensive but less risky than the aggressive approach

Working Capital Funding

Only look at a single company - to see how it is financed

1. Aggressive here means a lower level of investment in current assets

2. Conservative here means a higher level of investment in current assets

So working capital investment and financing policy use similar terminology, but mean different things.

A company could have an aggressive investment policy but a conservative financing policy