The aggressive financing strategy is risky in two respects: the firm operates with a low level of ________, and the firm has only a limited amount of ________ capacity.
A) current liabilities; short-term borrowing
B) net working capital; short-term borrowing
C) current assets; long-term borrowing
D) net working capital; long-term borrowing

Question

Quizplus · Accepted Answer

The aggressive financing strategy involves relying heavily on short-term borrowing to finance current assets, which can result in a low level of net working capital. Net working capital is the difference between current assets and current liabilities, indicating a company's ability to meet short-term obligations. A low level of net working capital can make it difficult for the company to cover its short-term obligations. Therefore, B is the best choice.

The Aggressive Financing Strategy Is Risky in Two Respects: the Firm