How to Answer: How is it possible for a company to show positive net income but go bankrupt?
Advice and answer examples written specifically for a Finance job interview.
13. How is it possible for a company to show positive net income but go bankrupt?
How to Answer
The answer to this question will always be yes. No matter the situation, fraud exists in our society and a perfect example is Enron. What happened to Enron is why SOX was passed through legislation. Answer the question and then give an example, but there is not need to get hung up on the answer.
Written by Bobbi Witt on June 18th, 2018
Entry Level
"Absolutely. If a company's accounts receivables continue to increase, but the company is not able to collect on the sale. And the accounts payables continue to increase and the company is unable to make payroll, or even pay-off long-term or short-term debt. Especially if loan notes gradually increase with higher interest rates and the company is able to make the payments or reconsolidate the debt. Or, there is just outright fraud occurring."
Written by Bobbi Witt on June 18th, 2018
Experience
"Yes. Two examples include deterioration of working capital (i.e. increasing accounts receivable, lowering accounts payable), and financial shenanigans.
Financial shenanigans acts or actions designed to mask or misrepresent the true financial performance or actual financial position of a company or entity. Financial shenanigans can range from relatively minor infractions involving creative interpretation of accounting rules to outright fraud over many years."
Written by Bobbi Witt