The use of short-term instead of long-term debt financing tends to increase both earnings and risk.

Question

The use of short-term instead of long-term debt financing tends to increase both earnings and risk.​

Quizplus · Accepted Answer

Short-term debt financing often carries higher interest rates than long-term financing, which can increase earnings. However, it also exposes the company to greater risk if it cannot meet its debt obligations when they come due. Long-term debt financing tends to have lower interest rates but results in less earnings volatility and less risk.

The Use of Short-Term Instead of Long-Term Debt Financing Tends