Is it possible for a firm to have positive net income and yet have cash flow problems?
A)No, this is impossible since net income increases the firm's cash.
B)Yes, this can occur when a firm is growing very rapidly.
C)Yes, this is possible if the firm window-dressed its financial statements.
D)No, this is impossible since net income and cash are highly correlated.

Question

Quizplus · Accepted Answer

Positive net income does not necessarily mean positive cash flow. Cash flow issues can arise due to various reasons such as high investments in capital expenditures, slow collections on accounts receivable, and high levels of inventory. Rapid growth can also lead to cash flow problems as the firm may need to spend more money upfront before generating returns.

Is It Possible for a Firm to Have Positive Net