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One Step in Assessing the Quality of Earnings Is to Look

question 17

Essay

One step in assessing the quality of earnings is to look for red flags. An example of a red flag is a significant increase in accounts receivable without commensurate growth in sales (that is, accounts receivable turnover decreases). List five other red flags an astute analyst might look for. Also, provide the reason for it being a red flag, and identify where the analyst might find this information.


Definitions:

Immune System

A complex network of cells, tissues, and organs that work together to defend the body against attacks by foreign invaders such as bacteria, viruses, and cancer cells.

Immunosuppression

The reduction of the efficacy of the immune system's response, naturally or through medical intervention.

Conditioned Response

A conditioned reaction to a once neutral stimulus that has been paired with an unconditioned stimulus.

Acquisition

The initial stage of learning or conditioning in which a response is established or a skill is begun to be learned.

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