General Knowledge · Banking and Financial Management
A manufacturing company requests an enhancement in working capital limits. The bank notes that while net profit is positive, operating cash flow has been negative for 3 years. Inventories have doubled and receivables are aged over 120 days. What is the most appropriate financial analysis conclusion regarding the firm?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The company should focus exclusively on issuing fresh equity to resolve operating cash deficits.
- 2The negative cash flow is irrelevant because the fund flow statement shows a positive source of operational funds.
- 3The company is facing a severe liquidity crunch because of over-trading and poor working capital management.✓
- 4The company is highly efficient as it is growing its asset base through reported profits.
Correct answer
The company is facing a severe liquidity crunch because of over-trading and poor working capital management.
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