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    Question

    A borrower shows Net Profit of ₹20 crore for the year.

    However, operating cash flow is only ₹2 crore due to sharp increase in receivables and inventory. Debt obligations next year are ₹15 crore. What is the most critical credit inference?
    A Profitability is strong Correct Answer Incorrect Answer
    B Accounting policy is conservative Correct Answer Incorrect Answer
    C Serious liquidity stress despite profits Correct Answer Incorrect Answer
    D High tax burden is the issue Correct Answer Incorrect Answer
    E Temporary seasonal effect Correct Answer Incorrect Answer

    Solution

    High profit but weak cash flow → inability to service debt → liquidity risk.

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