Which of the following statements is true?
A) Rapid growth spurs increases in market share and profits and thus, is always a blessing.
B) Firms that grow rapidly only very rarely encounter financial problems.
C) The cash flows generated in a given time period are equal to the profits reported.
D) Profits provide assurance that cash flow will be sufficient to maintain solvency.
E) Due to required cash investments in current assets, fast-growing and profitable companies can literally "grow broke".
F) None of the above.

Question

Quizplus · Accepted Answer

Fast-growing companies require more investment in current assets such as inventory and accounts receivable. This means that even though the company may appear profitable, it may not have sufficient cash flow to sustain its growth and may become cash-strapped. This phenomenon is known as "growing broke." Therefore, option E is correct. The other options are incorrect as they present misleading or incorrect information.

Which of the Following Statements Is True