Red flags in financial statement analysis can include all of the following EXCEPT:
A) a debt ratio higher than average.
B) a slowdown in inventory turnover.
C) sales increasing while receivables decrease.
D) increase in income from continuing operations.

Question

Quizplus · Accepted Answer

The question is asking for a statement that is not a red flag in financial statement analysis. An increase in income from continuing operations is not a red flag and can actually be seen as a positive trend. However, the other options are red flags: a high debt ratio indicates a company may have trouble repaying debt, a slowdown in inventory turnover could mean inventory is not selling and may lead to write-offs, and increasing sales while decreasing receivables indicates the company may be collecting less from customers.

Red Flags in Financial Statement Analysis Can Include All of the Following