The risk of the conservative financing requirements is low because of its high level of net working capital, and the fact that the strategy does not require the firm to use any of its limited short-term borrowing capacity.

Question

Quizplus · Accepted Answer

The high level of net working capital gives the firm a cushion against potential financial difficulties, and the fact that the strategy does not require any short-term borrowing means the risk of not being able to meet short-term obligations is low. Therefore, the conservative financing requirements pose a low risk for the firm.

The Risk of the Conservative Financing Requirements Is Low Because