Which of the Following Is the Main Lesson That Analysts

question 4

Multiple Choice

Which of the following is the main lesson that analysts and investors should take from the cases of Enron and WorldCom?

• A) The usefulness of financial statements to investors is entirely dependent on the ethics of those constructing them.
• B) It is not possible to effectively evaluate a company unless all the financial statements are fully and correctly prepared.
• C) The information in financial statements should be viewed extremely critically.
• D) Readers of even fraudulent financial statements can spot signs of a firm's financial health, if those statements are read fully and with care.

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Definitions:

Extensive Form

A way of representing a game in game theory that illustrates the sequence of moves, the knowledge of each player at different points, and their possible strategies.

Herfindahl Index

A measure of market concentration to assess the level of competition, calculated by squaring each firm's market share and then summing the total.

Market Shares

The portion of a market controlled by a particular company, often expressed as a percentage of total sales in the industry.

Government Subsidies

Financial assistance provided by the government to individuals, organizations, or industries to encourage certain activities or reduce the burden on the recipients.