Business FinancesQuestion 318 of 1605
It is possible for a contractor to show a net profit on the income statement yet still be unable to pay its bills. This situation is best explained by:
a.Poor cash flow — profit on paper does not equal cash in the bank
b.An error in the contractor's CSLB license
c.Having too little overhead
d.Charging too high a markup
Explanation
Profit is an accounting result; cash is what pays bills. Money tied up in receivables, retention, or inventory means a profitable contractor can still lack the cash needed to meet obligations.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)