Question 1: 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
Question 2: 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