Which of the Following Statements About the Quality of Earnings

question 53

Multiple Choice

Which of the following statements about the quality of earnings ratio is false?

• A) An increase in operating assets and a decrease in liabilities will reduce operating cash flows, thereby reducing the ratio.
• B) Seasonal variations in sales have no impact on the quality of earnings ratio.
• C) Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of earnings ratio.
• D) When sales are growing, receivables and inventory normally increase at a faster rate than trade payables often causing operating cash flows to be less than profit.