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How is it possible for a firm to be profitable and still go bankrupt?

A. Earnings have increased more rapidly than sales.
B. Net income has been adjusted for inflation.
C. The firm has positive net income but has failed to generate cash from operations.
D. Sales have not improved even though credit policies have been eased.

How would short-term investments in marketable securities be classified?

A. Investing activities.
B. Financing activities.
C. Cash.
D. Operating activities.

A debit note is a document made out when goods are:

A. Returned.
B. Undercharged.
C. Sold.
D. Overcharged.



Answer :

GinnyAnswer

Final answer:

A firm can go bankrupt despite being profitable if it fails to generate cash from operations due to various financial challenges.


Explanation:

A firm can be profitable yet still go bankrupt if it fails to generate cash from operations despite having positive net income. This situation can arise when a firm's profits are tied up in non-cash assets or when there are mismatches in the timing of cash inflows and outflows. When a firm commits to scheduled interest payments but lacks sufficient income to cover them, it can face financial distress leading to bankruptcy.


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