Based on the scenario, GreenSprout is facing a liquidity crisis (Option A). A liquidity crisis occurs when a company is unable to meet its short-term financial obligations, such as paying suppliers and covering operational expenses, even if it has valuable assets like inventory and equipment. The issue here is the lack of cash on hand to cover day-to-day expenses.
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.
Liquidity crisis
B.
Solvency crisis
C.
Leverage crisis
D.
Profitability crisis
1 answer