Assume all else remains the same.Which of the following statements is true?
A)The lower a firm's profit margin,the more discretionary financing a firm will require.
B)The higher a firm's profit margin,the more discretionary financing a firm will require.
C)The lower a firm's profit margin,the more cash a firm will have to reinvest.
D)A relationship between a firm's profit margin and its requirement for external financing does not exist.

Question

Quizplus · Accepted Answer

A firm with a lower profit margin will have less cash available to fund its operations and growth, therefore it will require more discretionary financing (such as borrowing) to make up for the shortfall. A higher profit margin means the firm is generating more cash and may not need as much discretionary financing.

Assume All Else Remains the Same