Capstan Autos: Navigating Financial Challenges with a Smile

1. Is Capstan Autos in trouble?

2. Is the bank correct to withhold further credit?

3. Why is Capstan’s indebtedness increasing if its profits are higher?

Answer:

Capstan Autos is facing financial difficulties as indicated by its increasing level of debt and may need to reassess its financial situation. The bank is correct to withhold further credit until the company demonstrates a sustainable plan for repaying its existing debt. Despite higher profits, Capstan Autos' increasing indebtedness suggests ineffective cash flow management.

Explanation:

Based on the given information, Capstan Autos is facing financial difficulties as indicated by its increasing level of debt. Despite higher profits, the company's indebtedness is increasing because it is not generating enough cash flow to repay its loans. Therefore, Capstan Autos is in trouble and may need to reassess its financial situation.

The bank is correct to withhold further credit because Capstan Autos is already heavily indebted and may not have the capacity to repay additional loans. The company needs to demonstrate a sustainable plan for generating enough cash flow to repay its existing debt before the bank can consider extending further credit. The company's profits may be higher, but the increasing level of debt suggests that Capstan Autos is not effectively managing its cash flow and may have other financial obligations that are not accounted for in the given information.