Question

Rapid corporate growth in sales and profits can cause financing problems. Elaborate on this statement.

Short answer

Rapid growth in sales requires a lot of investment. When the sale of the company grow rapidily then the company grows and it requires to invest in new projects which requires the additional funds. Hence, the company is required to plan the funding requirements and also the source from which these funds will be raised.

Step-by-step solution

Growth in sales and profits

Growth in sales and profits means the increase in demand of the company’s product in the market. The growth in sales and profits leads to the growth in the business.

Growth in business requires investment

When the business grows, the company requires funds for investment in the new projects. For raising funds, management have to plan the amount of money required and the sources from where company can get the required fund at reasonable rate of interest.