A firm is earning good profit but still, becomes bankrupt. Which of the following can be a probable reason for this situation?
Answer & explanation
Correct answer: option 2
A company can be profitable and still go bankrupt from cash flow problems. If they must pay for materials in January but don't get paid by their customers until June, they need a loan to survive until June. If they don't get that loan—even if they have guaranteed sales in June—then they will go out of business.