MANAGEMENT

Detailed explanation-1: -Under this approach of estimation of working capital requirements, all costs including depreciation and profit margin are included. Thus, production overhead inclusive of depreciation is considered for calculation of the cost of work-in-progress.

Detailed explanation-2: -Working capital investment decisions are categorized into three approaches based on the organizational policy and risk-return trade-off, i.e., aggressive, conservative and hedging/moderate. Hedging approach is an ideal method of working capital financing with moderate risk and profitability.

Detailed explanation-3: -A company is said to follow an aggressive working capital financing policy if it finances most of its temporary assets with short-term financing in a proportion that is beyond the matching approach. A portion of the permanent current assets is financed by short-term financing in the case of an aggressive approach.

Detailed explanation-4: -A moderate strategy, sometimes referred to as hedging, involves moderate risks and moderate profitability. With this approach, the fixed assets and the permanent working capital are financed from long-term sources while the variable working capital is sourced from the short-terms sources.