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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

What does it mean to adopt a maturity matching approach to financing assets, including current assets? How would a more aggressive or a more conservative approach differ from the maturity matching approach, and how would each affect expected profits and risk? In general, is one approach better than the others?

Summary Introduction

To explain: The maturity matching approach and its difference from aggressive or conservative approach and the effect of this approach on profits and on risk and, the approach which is most suitable.

Introduction:

Current Assets:

Any asset, which can be reported in the form of cash within the duration of 1 financial year is classified as current assets.

Explanation

Maturity matching approach:

This approach states that the maturity of company’s assets and liabilities should be coordinated to maintain a balance.

Difference of maturity matching approach from aggressive or conservative approach:

Maturity matching approachAggressive approachConservative approach
The requirement of funds for short-term should be fulfilled by using short-term debts, and for long-term should be fulfilled by using long-term debts.The requirement of funds even for long-term fulfilled by using short-term debts.All kind of fund requirements are fulfilled by using long-term debts

Table (1)

Effect of approaches on profits and risk:

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