Question

A cumulative cash deficit indicates a firm___________.A. Is capable of funding all of its needs internally.
B. Is facing long-term financial distress.
C. Has at least a short-term need for external funding.
D. Will go out of business within the year.
E. Is using its cash wisely.

Answer 1

Answer:

The correct answer is (c)

Explanation:

A cash deficit means that the expenses are greater than the profits or revenues. It can lead to various problems, such as bankruptcy and low cash reserves. A cumulative cash deficit shows that the retained earnings are negative after paying for expenses and dividends. It also indicates that a firm has at least a short-term need for external funding.