What is the most conservative financing strategy a firm coul

What is the most conservative financing strategy a firm could implement?

What makes an aggressive financing strategy tempting to a firm?

Solution

Conservative financing strategy is the strategy where the risk is low and the firm maintains high level of current assets. This strategy helps to lower the risk of short term cash shortages but the long term profitability is impacted. The most conservative strategy is that when he firm gets its short term financing through the long term debt. It is because the firm avoids the risk of default and gets the cash to meet the short term requirements.

The aggressive financing strategy is the strategy where the company resorts to short term debts for seasonal requirements and long term debt for its permanent requirements. The heavy risk is involved due to the dependence of the short term debt. The aggressive financing strategy becomes attractive to the firms when short term financing is available at lower rate of interest. It helps to cut the costs but at the same time, it is riskier.