ACA ICAEW Business, Technology and Finance Practice Exam

A defensive business typically aims to minimize risks while ensuring stability and sustainability in its operations. This cautious approach often involves utilizing little short-term finance, as relying heavily on short-term debt can lead to increased vulnerability during economic downturns or fluctuations in cash flow. By minimizing short-term financial obligations, such businesses reduce their exposure to risks associated with interest rate changes and the need for immediate repayments.

Instead, a defensive business may favor longer-term financing options that provide more predictable cash flows and financial stability. This strategy aligns with their overall goal of sustaining operations without taking on excessive risk, allowing them room to maneuver during challenging market conditions. In contrast, strategies that involve high short-term finance or high-risk investments may expose the business to significant volatility, which a defensive strategy seeks to avoid.