What is generally true about companies with high levels of non-cash current assets?

Companies with high levels of non-cash current assets are often tied up in forms such as accounts receivable, inventory, or prepaid expenses. While these assets can indicate growth potential and operational efficiency, they do not directly translate into cash available for immediate needs. As a result, such companies may face liquidity challenges.

This situation arises because non-cash current assets require time to convert into cash. For instance, if a company has a significant amount of inventory, selling that inventory takes time, and until the sale is realized, the company may struggle to meet its short-term obligations. Similarly, accounts receivable can represent funds that are owed to the company but are not yet collected. If a company is overly reliant on these types of assets without sufficient cash or cash equivalents, it exposes itself to the risk of liquidity issues, which can lead to difficulties in covering operational costs or seizing growth opportunities.

In contrast, the other options do not accurately reflect the implications of having high levels of non-cash current assets. High profits, the likelihood of avoiding bankruptcy, and consistent dividend payments can exist independently of the asset structure, depending on various factors such as market conditions, management decisions, and overall financial health.