In general, the more working capital a firm has,
A) the less likely are creditors to lend to the firm.
B) the lower its risk.
C) the lower its level of long-term funds.
D) the greater its risk.

Question

Quizplus · Accepted Answer

Working capital represents a company's short-term liquidity, which is the amount of cash and other resources it has to meet its day-to-day obligations. Generally, the higher the working capital a firm has, the lower its risk because it indicates that the firm has enough funds to cover its short-term expenses. This makes it easier for the firm to meet its financial obligations and can also be seen as a good indicator of the company's efficiency in managing its current assets and liabilities. However, having too much working capital may indicate that the firm is not investing its resources efficiently and may lead to a decrease in profitability.

In General, the More Working Capital a Firm Has