Final answer:
The claim that funds from operating activities should be invested in business assets is true. Companies reinvest profits into long-term assets for future growth, and it is an essential practice for a firm's sustainability and success.
Step-by-step explanation:
The statement that funds raised from operating activities should be invested in assets that can be used to carry on business operations is true.
Firms often need to make decisions that involve spending money in the present to create future profits. Such decisions might include purchasing long-term assets like machinery or buildings, or initiating research and development projects.
When companies reinvest their earnings, they are essentially directing their profits back into the business to promote growth and increase future profits. This is also known as reinvesting profits. Companies seek different sources of financial capital, such as early-stage investors, borrowing through banks or bonds, and selling stock, to support these investments.
A firm's ability to reinvest its cash flow into productive assets is crucial for sustained growth.
The investments made in new equipment or facilities, especially during economic expansions, are vital to nurture economic growth and to prepare for future demand.
Therefore, reinvesting the funds from operating activities in business assets is not just a strategic move but also an essential part of ensuring the longevity and success of the company.