Is it possible for a firm to have positive net income and yet to 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

Yes, a firm can have positive net income and still face cash flow problems, especially if it is growing rapidly. This can happen because net income includes non-cash items like depreciation, and revenues may be recognized before cash is actually received, leading to a gap between profits and cash availability.

Is It Possible for a Firm to Have Positive Net