A cumulative cash deficit indicates a firm___________.A. Is capable of funding all of its needs internally.B. Is facing long-term financial distress.

C. Has at least a short-term need for external funding.

D. Will go out of business within the year.

E. Is using its cash wisely.


The correct answer is (c)


A cash deficit means that the expenses are greater than the profits or revenues. It can lead to various problems, such as bankruptcy and low cash reserves. A cumulative cash deficit shows that the retained earnings are negative after paying for expenses and dividends. It also indicates that a firm has at least a short-term need for external funding.

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