Working capital refers to the funds required for meeting the day-to-day operational expenses of a business. It is essential for maintaining smooth production, purchasing raw materials, paying wages, meeting administrative expenses, and ensuring uninterrupted business operations. The determination of an appropriate level of working capital is one of the most important financial decisions because both excessive and inadequate working capital adversely affect profitability and liquidity. Different approaches have been developed to determine the amount of working capital that a business should maintain. The three broad approaches are the conservative approach, the aggressive approach, and the moderate or hedging approach. The conservative approach emphasizes maintaining a relatively high level of working capital. Under this approach, a firm finances not only its permanent working capital but also a part or the whole of its temporary working capital through long-term sources such as equity, retained earnings, long-term loans, or debentures. Temporary working capital refers to the additional working capital required during seasonal or cyclical increases in business activity, while permanent working capital is the minimum amount continuously required for regular operations. The main objective of the conservative approach is to minimize the risk of liquidity problems. Since long-term funds are generally stable and readily available, the firm is less likely to face shortages of cash or disruptions in production. This approach ensures timely payment to suppliers, employees, and creditors, thereby improving the firm's goodwill and creditworthiness. It also provides flexibility in managing unexpected increases in demand or unforeseen emergencies. However, the conservative approach has certain disadvantages. Long-term sources of finance generally involve higher costs compared to short-term borrowing. Maintaining excess cash, inventories, or receivables may result in idle funds that reduce the overall profitability of the business. The opportunity cost of holding excessive working capital may adversely affect shareholders' returns. Thus, while this approach offers greater safety, it sacrifices profitability. The aggressive approach represents the opposite philosophy. Under this approach, a firm finances a significant portion of both temporary and permanent working capital through short-term sources such as bank overdrafts, trade credit, commercial paper, or short-term loans. The objective is to minimize financing costs and maximize profitability. Short-term finance usually carries lower interest rates than long-term finance and offers flexibility in adjusting borrowing according to changing business needs. Since funds are borrowed only when required, idle funds are minimized, leading to efficient utilization of capital. Businesses operating in stable financial markets with predictable cash flows may benefit significantly from this approach. Despite its advantages, the aggressive approach involves considerable risk. Short-term loans mature quickly and require frequent renewal. If financial institutions refuse to renew loans or if interest rates rise unexpectedly, the business