Zero working capital

A situation in which there is no excess of current assets over current liabilities to be funded is referred to as having zero working capital.

The notion of zero working capital is utilized to reduce the levels of investment necessary in the running of firms while also increasing the investment returns of shareholders. In most circumstances, a growing business runs out of cash due to its ongoing requirement for working capital, necessitating the injection of zero working capital. This model is only applicable to those organizations that require a constant supply of cash due to their ever growing demands.

Asset and liability

An asset refers to a resource that has economic value and is owned by a company, country or an individual and it can either be tangible or intangible. Liability, on the other hand, refers to an organization’s financial obligations that arise during its operations. Liability can also be termed to as a claim against an asset. The main difference between the two is that assets provide future economic benefit to an organization while liabilities provide future financial obligations to the company. It is possible for a company to operate without any current liabilities. This happens especially in companies that have ample cash reserves, thus being able to pay for all the assets purchased.

Factoring of accounts receivables

Factoring of accounts receivables refers to the move by an organization to sell its invoices, or receivables, to a third-party financial organization referred to as a “factor.” it is also referred to as accounts receivable financing in some organizations. Factoring of accounts receivables is scalable, and this means that funding grows as receivables grow. Factoring account receivables entail the sale of account receivables by an organization to generate cash while account receivable financing entails the use of accounts receivables by an organization as collateral in a financing agreement.

Aggressive financing strategy

An aggressive financing strategy refers to a financing strategy where an organization funds its seasonal requirements using short-term debts and its permanent requirements using long-term debts. Some of the components of aggressive financing strategy include marketable securities, short-term loans, bank overdraft, and accounts payable. A conservative financing strategy refers to a financing strategy that an organization employs the use of long-term financing in the funding of its project requirements. The main difference between aggressive financing strategy and conservative financing strategy is that conservative financing mainly utilizes long-term financing while aggressive financing strategy utilizes both short-term and long-term financing depending on the company’s requirements.