"A company aiming at higher liquidity would rely more on long-term financing." Explain.

Dear student, A company aiming at its liquidity should rely more on long term financing because in long term finance the repayment is done after a year or more, like in financing through shares, shareholders are repaid at time of winding up of company. This helps company to maintain liquidity by holding cash. Whereas in case of short term finance, repayment is done within a year, so it is mandatory for company to keep enough cash in hand to make repayment. It leads to outflow of cash which in turn decrease liquidity of company. Regards

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