General Studies · Fund Flow and Cash Flow Analysis
Firm A funds its growth mainly through continuous 'Issue of Shares and Debentures' (high financing cash inflow, negative operating cash flow). Firm B funds its growth through steady 'Funds from Operations' (positive operating cash inflow). Which firm is in a more financially sustainable position for long-term survival?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both firms are in identical positions as long as both invest in fixed assets.
- 2Firm A, because issuing debt and equity reduces working capital burdens.
- 3Firm B, because its growth and capital expenditure are backed by internal operational accruals.✓
- 4Firm A, because it is raising large fresh capital from market.
Correct answer
Firm B, because its growth and capital expenditure are backed by internal operational accruals.
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