How can a successfully growing firm fall into a growth trap?
What will be an ideal response?
Many factors must be considered and managed carefully.
*With rapid growth in sales volume, the firm's income statements will generally show growing profits. But a growth trap can occur, because growth tends to soak up additional cash more rapidly than cash is generated in profits.
*The increase in inventory that may be expanded may occur as accounts receivable increase. The result is the company has a need to pay the inventory vendors but has not yet been paid from the buyers.
*Financing may be needed so cover the difference if cash is not managed properly. A discussion with a lender may need to occur before the growth trap develops.
*The result is that even though the venture is profitable, a high-growth firm's need for additional financing may exceed its available resources resulting in a growth trap.
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The Comfort Foam Products Company completed the flexible budget analysis for the second quarter, which is given below.
Which of the following would be a correct factor to explain the sales volume variance for variable costs?
A) decrease in sales price per unit
B) increase in variable cost per unit
C) increase in sales volume
D) increase in fixed costs
Answer the following statements true (T) or false (F)
A principle contains elements observable by empirical techniques.
Production opportunity is one of the four fundamental factors that affect the:?
A. ?creditworthiness of investors. B. ?cost of money. C. ?liquidity of securities. D. ?inflation of an economy. E. ?maturity of an investment.
Gross domestic product (GDP)
A. is the total cost of producing all goods and services in a year. B. usually rises when there are bad economic conditions in an economy. C. is the total market value of goods and services consumed in an economy in a year. D. is affected by economic conditions and the productivity of workers in the country. E. is the amount of new capital invested in business in a year.