Working capital policies

In this lesson

1. 0:00 Working capital policies overview
2. 0:28 Aggressive policy explained
3. 1:18 Conservative policy explained
4. 1:55 Matching moderate policy approach
5. 2:25 Pax Kerr case study analysis
6. 5:30 Investment versus financing policies
7. 6:46 Aggressive financing strategy summary

About this lesson

By working through real exam-style scenarios, you'll develop the ability to analyse financial statements and identify which policy a business is using, a key skill for FM and AFM papers. Working capital financing examines how companies fund their current assets using short-term and long-term sources. An aggressive policy relies heavily on cheaper short-term finance (like overdrafts and trade payables) to fund both fluctuating and permanent current assets, but carries higher risk because short-term funding availability isn't guaranteed. A conservative policy takes the opposite approach, using more expensive long-term finance for most assets, which reduces risk but increases costs. The matching policy sits in the middle, pairing short-term finance with fluctuating assets and long-term finance with permanent assets. This lesson distinguishes between working capital investment (how much current assets a company holds) and working capital financing (how those assets are funded). You'll see how these two dimensions interact: a company might adopt a conservative investment policy with high inventory levels while using an aggressive financing policy with short-term borrowing, or vice versa. Understanding this distinction is crucial for comprehensive working capital analysis in your exams.

Duration: 7m