In terms of financial health, what does it mean to avoid overdraft?

Avoiding an overdraft refers to maintaining sufficient cash reserves to cover expected expenses and obligations without dipping into borrowed funds. This is crucial for financial health because an overdraft situation indicates that a business or individual has spent more money than is available in its account, which can lead to additional fees, interest charges, and potential damage to credit ratings.

By keeping adequate cash reserves, a business can ensure it has enough liquidity to manage day-to-day operations smoothly. This proactive approach reflects prudent financial management and helps build a buffer against unexpected expenses, thus promoting overall stability. Strong cash reserves also provide flexibility in making investments or addressing sudden financial needs without relying on overdraft or short-term borrowing.

The other options relate to financing and profitability strategies, but do not directly address the concept of maintaining sufficient cash available to prevent overdraft situations. Hence, maintaining cash reserves stands out as the most pertinent factor in avoiding overdraft.