Final answer:
A company facing high operating risk is most likely to maintain a larger ratio of cash to noncash assets to provide liquidity for potential setbacks or opportunities. Companies with risk-averse management prefer to hold more cash as a buffer allowing them to tackle short-term obligations and invest in growth without liquidating assets.
Step-by-step explanation:
Based on an analysis of operating risk, a company's management that is most likely motivated to maintain a larger ratio of cash to noncash assets is one that prefers to have greater liquidity to manage higher operating risk. Operating risk, also known as business risk, refers to the risk inherent in the day-to-day operations of a company. It can be influenced by various factors such as market competition, customer demand, regulatory changes, and input costs. Companies facing high operating risk often prefer holding more cash to be prepared for potential setbacks or to take advantage of unforeseen opportunities.
A higher cash ratio provides a buffer against these risks, allowing a company to operate smoothly during times of financial strain without resorting to selling assets at unfavorable prices or taking on additional debt. It serves as an indicator that management is risk-averse and wishes to ensure the company has the liquidity to meet its short-term obligations and invest in growth possibilities without the need to liquidate noncash assets, which might involve more time or loss of value.