The correct answer is: C. Strict adherence to the maturity matching approach to financing would call for all current assets to be financed solely with current liabilities.
A. For small companies, long-term debt is the principal source of external financing. This is not always the case. For example, small businesses often use trade credit, which is a form of short-term debt, as their primary source of external financing.
B. The current assets of the typical manufacturing firm account for over half of its total assets. This is not always the case. For example, a manufacturing firm that has a lot of inventory on hand will have a higher proportion of current assets to total assets than a manufacturing firm that has a lot of cash on hand.
D. Similar to capital structure management, working capital management requires the financial manager to make a decision and not address the issue again for several months. This is not always the case. For example, a financial manager may need to adjust the firm’s working capital policy on a regular basis in response to changes in the firm’s business environment.
The maturity matching approach to financing is a strategy that involves matching the maturities of a firm’s assets and liabilities. This approach is designed to minimize the firm’s risk of financial distress. Under the maturity matching approach, a firm would finance its current assets with short-term liabilities and its long-term assets with long-term liabilities. This approach would help to ensure that the firm has enough cash on hand to meet its short-term obligations and that it does not have to take on too much debt.