"Analysts look for red flags in financial statements that may signal financial trouble." Which of the following is a "red flag" suggesting that a company may be in trouble?
A)a decline in days' sales in inventory
B)a decrease in dividend payout ratio from year to year
C)a reduction in the debt ratio
D)net cash flow from operating activities is consistently lower than net income

Question

Quizplus · Accepted Answer

The fact that net cash flow from operating activities is consistently lower than net income suggests that the company may be having difficulty converting its earnings into cash. This could indicate problems with collecting receivables, managing inventory, or controlling expenses.

"Analysts Look for Red Flags in Financial Statements That May