Question

Carlos is the financial manager of GreenSprout, an eco-friendly gardening company. Recently, Carlos noticed that the company is struggling to meet its short-term financial obligations, like paying suppliers and covering operational expenses. Despite having a large inventory and equipment, the company is having trouble quickly turning these assets into cash. Carlos needs to ensure that the company has enough cash on hand to cover day-to-day expenses.

Based on the scenario, which type of financial crisis is GreenSprout facing?

A.
Profitability crisis



B.
Liquidity crisis

C.
Solvency crisis



D.
Leverage crisis

Answer 1

Based on the scenario, GreenSprout is facing a **B. Liquidity crisis**. This is indicated by the company's struggle to meet its short-term financial obligations, even though it has a large inventory and equipment. A liquidity crisis occurs when a company does not have enough cash flow to cover its immediate expenses and obligations.