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Dilfraz Singh, Lovely Professional University Unit 4: The Financing Mix

Unit 4: The Financing Mix Notes

CONTENTS
Objectives
Introduction

4.1 Approaches to Determine an Appropriate Financing Mix
4.1.1 Hedging or Matching Approach
4.1.2 Conservative Approach

4.1.3 Aggressive Approach
4.2 Working Capital and Banking Policy
4.2.1 Recommendations of Dahejia Study Group
4.2.2 Recommendations of Tandon Committee
4.2.3 Recommendations of Chore Committee

4.2.4 Recommendations of Marathe Committee
4.2.5 Recommendations of Kannan Committee
4.3 MPBF Norms

4.4 Summary
4.5 Keywords
4.6 Review Questions
4.7 Further Readings

Objectives

After studying this unit, you will be able to:

Discuss the approaches to determine an appropriate financing mix
Explain the working capital and banking policy

Discuss recommendations of Dahejia Committee, Tandon Committee, Chore Committee,
Marathe Committee and Kannan Committee
Explain the MPBF Norms

Introduction

The net working capital position of the firm is an important consideration, as this will determine
the firm’s profitability and risk. Here the profitability refers to profits after expenses and risk
refers to the probability that a firm will become technically insolvent where it will be unable to
meet obligations when they become due for payment.
A finance manager has to make an appropriate financing mix, which will limit the risk and
increase the profitability. Financing mix refers to the proportion of current assets financed by
current liabilities and long-term funds.

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