Question

For any positive growth in forecasted sales, which of the following firm will most likely require no immediate financing?

____

Firms with short production cycles

Firms with an under-utilization of its fixed assets

Firms with a high degree of profitability

Firms with operations at 100% capacity

Answer 1

Answer is C, a firm with high degree of profitability will not require immidiate financing if there is increase in forcasted sales.

This is beause company already have high profitability, which means that they are already earning good amount of profit out of the business and company can fulfill all the requirements for the increase in sales from the profit they have.

Suppose forcasted sales have +ve positive growth and the firm needs to invest in its production capacity to fulfill the demand. This company can reinvest the profits which they already have and can make use of that to increase the capacity. So in that case there is no need of financing.

Similarly, if they need to buy some new equipment for the increase in demand, they can make use of the money they already have.