Which of the Following Trends Found on Financial Reports Would

question 4

Multiple Choice

Which of the following trends found on financial reports would most likely indicate a possible problem?

• A) A material decrease in the receivables turnover.
• B) A material increase in inventory turnover.
• C) A material increase in daily sales compared to total outstanding receivables.
• D) A material increase in the acid-test ratio.

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Definitions:

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.

Externality

A consequence of an economic activity experienced by unrelated third parties; can be either positive or negative.

Resource Dependency

A theory in organizational studies that describes how external resources dictate the behaviors and strategies of organizations.

External Constituencies

Groups or individuals outside an organization that are affected by its decisions and actions, such as customers, suppliers, and the community.