Question #11
Reading: Reading 19 Equity Valuation - Applications and Processes
PDF File: Reading 19 Equity Valuation - Applications and Processes.pdf
Page: 5
Status: Correct
Correct Answer: A
Question
When an analyst scrutinizes a firm's financial statements to try to discern how accurately the reported information reflects economic reality, and to evaluate the sustainability of the company's performance, the process is most likely to be referred to as a:
Answer Choices:
A. quality of earnings analysis
B. comprehensive basis of accounting analysis
Explanation
The accuracy and level of detail disclosed in financial reports is referred to as the quality
of earnings. When we say "quality of earnings analysis" we are generally referring to
scrutinizing all a firm's financial statements (including the balance sheet) to try to
determine not only the sustainability of the companies' performance but also how
accurately the financial statements reflect economic reality.