Why might one firm have positive cash flows and be headed for financial trouble
Why might one firm have positive cash flows and be headed for financial trouble, whereas another firm with negative cash flows could actually be in a good financial position?
One reason that a company could have positive cash flow but headed for financial trouble is that even if it shows a company getting cash it does not mean that they are profiting. For an example, a company that is liquidating has a positive cash flow on their financial statements but the future does not look good for them. Another reason why they could be headed for financial trouble is that cash does not often mean success especially in the short term, often companies will go out of their way to meet short-term obligations by getting cash. This is demonstrated on the opposite side too, companies that have negative cash flow could be tied up with investment or research and development. This means that they are only giving out cash but in the near future expecting astronomical returns when the new “iPhone or Tesla” or any tech-centric product comes out.