Final answer:
The incorrect statement about liquidity and profitability is that a business's inability to pay its debts as they come due implies it is operating unprofitably. Liquidity issues can occur even in profitable businesses, and sources of financial capital can sustain liquidity without necessarily implying profitability.
Step-by-step explanation:
The statement regarding liquidity and profitability that is not true is: If a business is unable to pay its debts as they come due, it is operating unprofitably. This statement is incorrect because a business's inability to pay debts is related to liquidity, not necessarily profitability. A company can be profitable but still face liquidity issues if its revenues are tied up in non-cash assets or if it's experiencing a timing mismatch between receiving income and needing to pay debts.
On the other hand, a business can be liquid, meaning having sufficient cash or cash-equivalents to meet short-term obligations, and still operate unprofitably over several years. This scenario might occur if a business has access to financial capital from sources other than profits, such as bank loans, issuing bonds, or selling stock. While these sources can provide cash flow, they do not equate to profitability, which is derived from the operations of the business.
Furthermore, businesses aim to generate profits, and survival in the long run depends on both profitability and liquidity. Without profitability, a business cannot sustain itself indefinitely, and without liquidity, it cannot meet immediate financial obligations, potentially leading to insolvency despite being profitable on paper.