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A firm can go bankrupt despite being profitable if it fails to generate cash from operations due to various financial challenges.
A firm can be profitable yet still go bankrupt if it fails to generate cash from operations despite having positive net income. This situation can arise when a firm's profits are tied up in non-cash assets or when there are mismatches in the timing of cash inflows and outflows. When a firm commits to scheduled interest payments but lacks sufficient income to cover them, it can face financial distress leading to bankruptcy.
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