Aggressive financing policies

Written by rachel murdock
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Aggressive financing policies
Aggressive financing policies increase risk, but also chances for high returns. (finance image by Chad McDermott from Fotolia.com)

Aggressive financing policies are policies of investing a company's assets to gain the highest rate of return on the investment. Aggressive policies call for a company to finance company operations by using less expensive, short-term funds with more volatility.

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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.

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