When a firm finances long-term assets with short-term sources of funding,it:

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This is because financing long-term assets with short-term sources of funding violates the principle of matched maturities. Short-term sources of funding have a maturity of less than one year and are therefore not suitable for financing long-term assets that have a maturity of more than one year. This approach exposes the firm to the risk of a cash shortage if the short-term funding is not available when needed. Therefore, the use of short-term funding to finance long-term assets is not recommended.

When a Firm Finances Long-Term Assets with Short-Term Sources of Funding,it