Which action most directly reduces the risk that a business cannot meet short-term obligations?
Correct answer: B. Maintaining adequate liquid current assets
- A. Increasing investment in long-term machinery
- B. Maintaining adequate liquid current assets
- C. Replacing equity with additional fixed debt
- D. Extending the useful life of existing equipment
Explanation
Cash and other liquid current assets can be used to settle short-term liabilities as they fall due. More machinery or fixed debt does not directly improve the firm's immediate liquidity position.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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