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".

Question

Quizplus · Accepted Answer

Fast-growing companies often require significant investments in current assets such as inventory, accounts receivable, and capital expenditures to support their growth. These investments can tie up cash and lead to a cash flow shortage, even if the company is profitable on paper. This phenomenon is known as "growing broke." Therefore, statement E is the only true statement among the given options.

Which of the Following Statements Is True