Question #27
Reading: Reading 19 Equity Valuation - Applications and Processes
PDF File: Reading 19 Equity Valuation - Applications and Processes.pdf
Page: 10
Status: Unattempted
Correct Answer: A
Question
What are three factors that would make a firm's accounting earnings less of a gauge of future economic performance? Late filings, unusually:
Answer Choices:
A. high amounts of loans to company insiders, and long tenure of senior management
B. high amounts of loans to company insiders, and short tenure of senior management
C. low amounts of loans to company insiders, and short tenure of senior management
Explanation
Quality of earnings looks at the relationship between accounting earnings and economic
profit potential of the firm. An analyst is concerned about anything that would render
accounting earnings less useful as a gauge of the firm's future expected economic
earnings. Warning signals include late filings, unusually high amounts of loans to company
insiders, and short tenure of senior management.