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.

Question

Quizplus · Accepted Answer

The statement of financial position provides insight into how the company is financed and what assets are being used to generate revenue. Understanding this can help stakeholders assess the quality of the company's earnings. A high cash balance may not indicate high-quality earnings if it is not being used effectively, and a low liability balance may indicate that the company is not properly investing in growth opportunities or managing risk. The statement of financial position is not solely indicative of earnings quality, but it can provide valuable information for stakeholders.

When Looking to the Statement of Financial Position for an Assessment