A Flexible Short-Term Financial Policy

question 107

Multiple Choice

A flexible short-term financial policy:

• A) increases the likelihood that a firm will face financial distress.
• B) incurs an opportunity cost due to the rate of return that applies to short-term assets.
• C) advocates a smaller investment in net working capital than a restrictive policy does.
• D) increases the probability that a firm will earn high returns on all of its assets.
• E) utilizes short-term financing to fund all of the firm's assets.

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Definitions:

Sales

The total revenue a company generates from selling goods, services, or both, within a specific period.

Average Collection Period

The average amount of time it takes for a company to receive payments owed by its customers for goods or services sold on credit.

Income Statement

A financial statement that shows a company's revenue and expenses over a specific period, leading to net profit or loss.

Balance Sheet

A financial statement summarizing a company's assets, liabilities, and shareholders' equity at a specific point in time.