"Analysts Look for Red Flags in Financial Statements That May

question 27

Multiple Choice

"Analysts look for red flags in financial statements that may signal financial trouble." Which of the following is a "red flag" suggesting that a company may be in trouble?

• A)a decline in days' sales in inventory
• B)a decrease in dividend payout ratio from year to year
• C)a reduction in the debt ratio
• D)net cash flow from operating activities is consistently lower than net income

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Definitions:

Contractor

An individual or company that enters into a contract to perform services or provide goods for another party in exchange for compensation.

Subcontractors

Specialized professionals or companies hired by the main contractor to perform specific tasks as part of a larger project.

Secured Interest

A legal claim or lien on assets or collateral, given to lenders as security for a loan or obligation.

Creditor

A creditor is an entity or person that lends money or extends credit to another party, known as the debtor.