Juice Corp is a juice selling company that has had an amazing first year. For their second year, they plan on doubling their sales. To start up the company, they had to pay up front for insurance, equipment, and employee hiring to meet the advancing sales needs. They also offered 90-120 day delay payments from customers, to encourage sales. This has created a large cash shortfall. Vendor payments have gotten far behind, 90 plus days, as well. However, sales have skyrocketed from 1 million to 4 million. Sales are expected to double every year after. Lastly, the company showed a Net Income for their first year and second year.
Can the company survive another 2 years at the above rate? Why?
If you were an investor, would you invest in the company? Why?
Why does the above scenario happen often for small companies that are just starting out?
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