3. Which of the following statements regarding liquidity and profitability is not true? a. If a...

3. Which of the following statements regarding liquidity and profitability is not true?

a. If a business is unable to pay its debts as they come due, it is operating unprofitably b. In order to survive in the long run, a business must both remain liquid and operate profitably c. A business may operate profitably, yet be unable to meet its obligations d. A business may be liquid, yet operate unprofitably for several years

Solutions

Expert Solution

Correct answer is Option a - If a business is unable to pay its debts as they come due, it is operating unprofitably

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Notes

a. If a business is unable to pay its debts as they come due, it is operating unprofitably - The statement is incorrect. If a business is unable to pay its debts as they come due it means that they have issues with their liquidity. It has nothing to do with the profitability position of the company.

b. In order to survive in the long run, a business must both remain liquid and operate profitably - True a company needs to generate profits and also maintain adequate liquidity to survive.

c. A business may operate profitably, yet be unable to meet its obligations - True profits does not guarantee strong liquidity position. Hence a profitable company may still face challenges in meeting its liabilities.

d. A business may be liquid, yet operate unprofitably for several years - True liquidity and profitability are not inter linked. A company having strong liquidity position may not be running profitable operations.

ekkarill92 answered 6 months ago

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