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How is it possible to have high sales and high profits and run out of cash while running a business?
Wiki User
∙ 12y ago
It is quite possible in the case where you have high levels of Accounts receivables and inventory and low levels of accounts payables. A sale is recorded the moment an invoice is raised and shipment deliverd that does not necessarily mean you received cash and goes to acc receivables. Similarly, if you maintain high levels of inventory, lot of your money remains tied up untill the inventory gets sold off. on the contrary, if you have weaker payment terms with your suppliers, you end up paying earlier than your acc recivables convert to cash. Therefore, high sales and high profit does not necessarily mean a good cash position.
Wiki User
∙ 12y ago
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