he four steps represent a logical way to think about filling out the balance sheet in order to (1) only accept investments with positive NPV, (2) maintain the appropriate debt-equity mix, and (3) hedge across the balance sheet. The four steps are generally done in sequence, but are repeated many times as conditions and opportunities change. The sequence is:

(1) Establish balances for each permanent current asset using the incremental techniques

(2) Establish balances for each permanent current liability by locating all low-cost or free short-term financing opportunities using the effective interest rate analysis

(3) Add additional permanent debt, both short-term and long-term to hedge the maturities of the assets on the balance sheet.

(4) Respond to temporary current asset buildups and take advantage of any opportunities arising from temporary working capital.