Question

I'm a little confused regarding a company's cash. In theory, if a company was able to have enough cash to cover the costs of its operating, financing, and investing activities but wasn't actually profitable for investors, would it still be able to survive?

A) Yes, the company would survive because it has enough cash to cover its activities.
B) No, the company would not survive because profitability is essential for long-term sustainability.
C) Maybe, it depends on other factors such as debt levels and market conditions.
D) It's unclear, more information about the company's specific situation is needed.

Answer 1

A company with enough cash to cover its immediate costs but not profitable for investors may survive depending on debt levels, market conditions, and potential investment from venture capitalists. Long-term survival, however, often depends on profitability and the ability to attract financial capital for growth and sustainability.

Step-by-step explanation:

When assessing whether a company with sufficient cash to cover its costs but not turning a profit can survive, the answer is C) Maybe, it depends on other factors such as debt levels and market conditions. Firms require financial capital to weather periods of low profits or losses and persist until more favorable conditions emerge. For example, companies may need to find sources of financial capital other than profits through methods such as borrowing from banks and issuing bonds. Moreover, if a firm receives investments from venture capitalists, it can benefit from the expertise and oversight these investors provide, which can be vital for navigating rough financial periods. However, profitability is crucial for long-term sustainability; without it, a firm may struggle to attract further investment, repay debt, or reinvest in growth, and thus could be at risk of ceasing operations.