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Chapter 3: Q. 1DQ (page 182)

Explain how rapidly expanding sales can drain the cash resources of a firm.

Short Answer

Expert verified

Rapid expansion in sales will require an organization to invest more in assets for supporting the growth and this will drain cash resources.

Step by step solution

01

Meaning of cash resources

Cash resources refer to the cash and cash equivalents held by an entity. These resources include cash balance, bank balance, marketable securities, and any other cash equivalent asset held by the entity.

02

The impact of increased sales on the cash resources

The sales expansion will require company to hold more inventory for meeting the increased sales demand and this will require the company to increase its current assets. The increased investment in these current investments will decrease the cash resources of the company.

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