Decomposition equation
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18 Which of the following would least likely be considered as signaling a potential problem regarding the "quality of earnings" for a firm?
a. the firm has experienced a significant increase in earnings relative to the industry overall
b. the firm's accounts receivable account is increasing at a rate faster than the firm's increase in sales.
c. the firm has announced a delay in their release of financial statements due to a change in auditors
d. the firm's accounts receivable account is increasing, but at a rate slower than the firm's increase in sales.
e. all of the above would be considered signals of potential problems regarding he firms' quality of earnings
19 The extended Du Pont equation, a. k. a. the 3 components ROE decomposition equation, (i.e.ROE = (profit margin)x(total asset turnover)x(equity multiplier) is used to
a. compute the firm's ROE, as the equation states.
b. decompose the firm's ROE into sub-components, for a better understanding of the firm's financial health.
c. determine if the firms is liquid
d. compute the firm's ROA, as the equation states
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18 Which of the following would least likely be considered as signaling a potential problem regarding the "quality of earnings" for a firm?
a. the ...
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