Ontario PHBI Financial Planning & Management Practice Test 2025 - Free PHBI Financial Planning Practice Questions and Study Guide

Managing financial risk involves employing strategies that protect the organization from potential financial losses and enhance its overall stability. The correct choice of maintaining high inventory levels is not a factor in managing financial risk as it can actually increase financial exposure rather than mitigate it.

High inventory levels can lead to several financial risks, including increased carrying costs, risk of obsolescence, and cash flow problems. When a company holds large amounts of inventory, it ties up capital that could be used more effectively elsewhere. If demand for those products decreases, the company might end up with unsold inventory, resulting in losses.

On the other hand, minimizing debt levels, regularly reviewing financial results, and enhancing operational efficiency are all proactive strategies in financial risk management. Minimizing debt reduces the company's financial obligations and the risk of insolvency. Regular reviews of financial results enable a company to identify potential issues early, allowing for timely corrective measures. Enhancing operational efficiency helps reduce costs and improve profitability, which contributes to a stronger financial position and mitigates risk.