Final answer:
New companies may experience an increase in accounts receivable and inventory during rapid sales growth, leading to a discrepancy between net income and cash flows. They face challenges in raising capital without a proven profit record, necessitating strategies like reinvesting profits and finding early-stage investors.
Step-by-step explanation:
The question is about the challenges that new companies face when they experience rapid sales growth. This growth can lead to an increase in sales-related asset accounts, such as accounts receivable and inventory. This can sometimes cause a discrepancy between net income and operating cash flows, as net income may reflect sales that haven't yet been collected as cash. New firms often need to reinvest early-stage financial capital to fund growth, yet they face difficulty in raising capital due to lack of proven profitability. They may generate financial capital through mechanisms such as reinvesting profits, borrowing, or selling stock, provided they can convince early-stage investors of their potential.