Final answer:
Negative net income is generally not sustainable in the long term for a start-up service company.
The company should look to reinvest profits and explore various sources of financial capital to finance growth, while managing the ratio of debt to equity.
A balanced approach and a reliable capital source are crucial for the company's survival and expansion.
Step-by-step explanation:
If a start-up service company is growing fast, having a positive Gross Profit and positive Operating Income but showing negative Income Before Taxes, it might indicate that there are one-time or short-term financial strains that could be affecting the bottom line.
Expenses such as interest on debt, investment costs, market expansion strategies, or sudden changes in tax policies might be contributing to the negative income. However, sustaining negative net income in the long term is generally not viable for a firm's financial health.
Considering that the company has more Long Term Debt than Equity, it should exercise caution in taking on additional debt as it may lead to high leverage and financial distress.
Alternatively, the company could look into ways to raise financial capital through equity financing, reinvesting profits into the business, or attracting investors by demonstrating potential for future profits.
Exploring different avenues like venture capital, private equity, or even crowd-funding might also be appropriate, depending on the specific circumstances and stage of growth of the company.
Raising financial capital is imperative for the company to finance its growth opportunities, especially at its early stages. To ensure survival during tough times, finding a reliable source of financial capital other than profits is essential.
To finance its growth sustainably, the company should seek a balanced mix of equity and debt, optimize its operations to increase profitability, and consider a strategic reinvestment of profits.