Which of the following best describes a conservative financing policy?

Question

Quizplus · Accepted Answer

A conservative financing policy involves financing permanent working capital needs with long-term debt rather than short-term debt. This reduces the risk of the company being unable to meet its obligations if interest rates rise or if the company experiences financial difficulties. Financing temporary working capital with short-term debt can still be a conservative approach, as long as the company has the ability to quickly repay the debt if necessary. Financing temporary working capital with long-term debt or equity would not be considered conservative, as it would involve taking on more risk.

Which of the Following Best Describes a Conservative Financing Policy