The Use of Financial Statements for Predicting Future Earnings and Cash

question 83

Multiple Choice

The use of financial statements for predicting future earnings and cash flows is limited due to

• A)management bias, lack of forward-looking information, and certain inherent limitations.
• B)lack of judgment, management bias, and lack of inclusion of inflationary effects.
• C)lack of forward and backward-looking information.
• D)lack of backward-looking information, the likelihood of management bias, and the omission of historical costs.

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Definitions:

Pure Play Approach

An investment strategy focusing on companies that specialize in a specific industry sector or product, minimizing diversification to capitalize on sector strengths.

Cost Of Capital

The profit percentage a firm has to secure on its investments to uphold its market valuation and lure funding.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.