When Looking to the Statement of Financial Position for an Assessment

question 48

Multiple Choice

When looking to the statement of financial position for an assessment of earnings quality, stakeholders should pay particular attention to

• A) a proportionately high cash balance, as this signifies high-quality earnings.
• B) how the company is financed and what the revenue-generating assets are.
• C) a proportionately low liability balance, as this signifies high-quality earnings.
• D) The statement of financial position is not a reflection of earnings quality.

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Definitions:

Dividend Policy

The strategy a company uses to decide how much it will pay out to shareholders in dividends.

Legal Requirements

Mandates established by law that must be followed by individuals, organizations, or businesses.

Property Dividend

A dividend paid to shareholders in the form of assets other than cash, typically securities or physical assets owned by the company.

Bonds

Fixed-income investments representing a loan made by an investor to a borrower, often corporate or governmental.