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

Question

Quizplus · Accepted Answer

A significant decrease in net income for several years in a row suggests that a company may be in trouble, as it may indicate declining profitability and potentially unsustainable operations. Consistent movement in sales, merchandise inventory, and accounts receivable may be a good sign of stable operations. A reduction in the debt ratio may suggest that the company is managing its debt well. Operating activities being a major source of cash flows is generally a positive sign, indicating the business is generating cash from its core operations.

Analysts Look for Red Flags in Financial Statements That May