Broke Inc is experiencing a cash flow problem finding that its cash decreases, even though net income increases. Which of the following is/are a possible reason(s)?
A)Lag between cash expenditures incurred in producing goods and cash collections from customers once the firm sells those goods.
B)The firm must generally produce more units than it sells during a period of growth if it is to have sufficient quantities of inventory on hand for future sales.
C)Cash needed for a higher level of production exceeds the cash received from the prior period's sale.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

All three options A, B, and C can contribute to a cash flow problem when net income is increasing. Option A is related to the timing of cash inflows and outflows, where cash collections from customers may not match the cash expenditures incurred in producing goods. Option B is related to the need for maintaining inventory levels, which increases cash outflows without an immediate corresponding increase in cash inflows. Finally, option C is related to the need for investing in higher levels of production capacity to sustain growth, which can increase cash outflows before the benefits of increased sales are realized.

Broke Inc Is Experiencing a Cash Flow Problem Finding That