Why cannot a profitable company like Jackson repay its loa1QuestionWhy cannot a profitable company like Jackson repay its loan? In discussing this item, you may need to prepare a "Sources and Uses" statement (do not post this statement). Discuss your findings.Answer & ExplanationTo understand...
Why cannot a profitable company like Jackson repay its loan? In discussing this
item, you may need to prepare a "Sources and Uses" statement (do not post this
statement). Discuss your findings.
Answer & Explanation
To understand why a profitable company like Jackson might be unable to repay
its loan, we need to consider several financial aspects beyond just profitability.
Profitability does not always equate to liquidity or the ability to meet short-term
obligations. Here are some potential reasons and considerations:
1. Cash Flow Issues:
o Operating Cash Flow: A company can be profitable on paper but
still face cash flow problems if it has high accounts receivable or
inventory levels that tie up cash.
o Non-Cash Expenses: Profits may include non-cash items like
depreciation, which do not affect cash flow.
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