Analysts Look for Red Flags in Financial Statements That May

question 144

Multiple Choice

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

• A) a significant decrease in net income for several years in a row
• B) a consistent movement in sales, merchandise inventory, and accounts receivable
• C) a reduction in the debt ratio
• D) operating activities are a major source of cash flows

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Definitions:

Elasticity of Demand

The elasticity of demand measures how responsive the quantity demanded of a good or service is to a change in its price, indicating the sensitivity of consumers to price changes.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider in different markets or to different customers.

Natural Monopoly

A market condition in which a single firm can supply a product or service to an entire market at a lower cost than could two or more firms, often due to economies of scale.

Price Elasticity

The degree to which the quantity demanded of a good changes in response to a change in its price.