Changes in working capital investment policy

It  considers the level of current assets used to support revenue generation in relation to different companies

A company adopts an aggressive working capital investment policy relative to another company if it uses a lower level of current assets to support a similar level of revenue generation. Conversely, the second company adopts a convervative working capital investment policy relative to the first company.

Revenue / current asset

Revenue / Net working capital

Changes in working capital funding policy

It can be characterised as conervative, matching and aggressive, depending on the extent to which flucutating current assets and permanent current assets are financed from short-term or long-term sources.

A conservative funding policy will use long-term funds to finance permanent current asset and a proportion of flluctuating current assets.THis is a lower risk policy as longterm funds are less risky than short-term funds from a company perspective. but as long term funds are more expensive than short term funds, this policy also devreases profitability.

An aggressive funding policy will use short term funds to finance fluctuating cuttent assets and a proportion of permanent current assets.This is a higher risk policy as shor term funds are more risky than long term funds from a company perpective. but as short term funds are cheaper than long term fuds, this policy also increases profiability.

A matching funding policy would apply the matching principle in using short term funds to finance fluctuating current assets and using long term funds to finance permanent current assts.