Which of the Following Statements Is CORRECT

question 33

Multiple Choice

Which of the following statements is CORRECT?

• A)A shortage of cash could cause a company to face bankruptcy, but lots of cash will ensure success.
• B)When analyzing the Statement of Cash Flows, investors should ignore signals of cash flow distress because the company can show improvements in future periods.
• C)If the Statement of Cash Flows shows that current assets are increasing far more than current liabilities, the company may have trouble collecting receivables or selling inventory.
• D)A sign of a healthy company is that financing activities are dominated by borrowing.

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Definitions:

Shortage/Surplus

A shortage occurs when demand exceeds supply, while a surplus happens when supply exceeds demand, both of which can lead to market adjustments.

Demand Equation

A mathematical representation of the relationship between the quantity of a good consumers are willing and able to buy and the good's price.

Supply Equation

An economic formula that represents the relationship between the quantity of a good supplied by producers and the price of the good.

Price Floor

A minimum price set by the government for certain goods and services, intended to prevent prices from dropping too low.