Liquidity is positively related to financial flexibility but negatively related to risk and return on investments.

Question

Quizplus · Accepted Answer

Liquidity ensures that a company has enough cash or cash-equivalent assets to meet short-term obligations, which increases financial flexibility. However, highly liquid assets typically yield lower returns compared to investments with higher risk, leading to a negative relationship with risk and return on investments.

Liquidity Is Positively Related to Financial Flexibility but Negatively Related