Problem Three: Analyzing Earnings

question 70

Essay

Problem Three: Analyzing Earnings
Earnings are extremely important to a publicly traded company and the creditors and investors of that company. However, looking at earnings without regard to the quality of those earnings is hazardous to the health of creditors and investors.
a. Why is the determination of earnings quality and persistence important?
b. Explain recasting of the income statement and give three examples of items that are recasted.
c. Explain adjusting of the income statement and give three examples of items that are recasted.

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Definitions:

Regulates Hunger

The function of specific hormones, like ghrelin and leptin, and brain mechanisms that control the sensation of hunger and signal the need to consume food.

Hypothalamus

A region of the brain responsible for producing hormones that regulate body temperature, hunger, moods, release of hormones from many glands, especially the pituitary gland, and sleep cycles.

Evolutionary History

The branch of biology that studies the origins and changes in the diversity of life over time, explaining how and why species have evolved and become extinct.

Limbic System

A complex system of nerves and networks in the brain, involved in instinct and mood. It controls basic emotions (fear, pleasure, anger) and drives (hunger, sex, dominance, care of offspring).