Which of the following is an indicator that the company may not be able to continue as a going concern?
A) issuing bonus shares to shareholders instead of cash dividends
B) a high level of borrowing
C) negative cash flows from operating activities
D) introduction of a new product into the market

Question

Quizplus · Accepted Answer

Negative cash flows from operating activities indicate that the company is not generating enough cash from its core operations to sustain its business activities. This is a warning sign that the company may not be able to continue as a going concern.

Options A and D are not indicators of financial distress. Issuing bonus shares instead of cash dividends may be a strategic decision made by the company to retain earnings for future growth. Similarly, introducing a new product into the market may be a positive move for the company, even though it may involve some initial costs.

Option B, a high level of borrowing, may or may not indicate financial distress. It depends on the company's ability to repay its borrowings and the terms of the borrowing agreements. However, if the borrowing is not matched by the company's ability to generate sufficient cash in the future, it may become a burden and lead to financial distress.

Which of the Following Is an Indicator That the Company