Why does income smoothing generally lead to a higher share value? a. It reduces the perceived risk of the company b. It leads to higher perceived income c. It is perceived as increasing the chance of insolvency d. None of the above. Research into income smoothing has concluded that
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Why does income smoothing generally lead to a higher share value?
a. It reduces the perceived risk of the company
b. It leads to higher perceived income
c. It is perceived as increasing the chance of insolvency
d. None of the above.
Research into income smoothing has concluded that
a. Smoothed income indicates high earnings quality
b. Smoothed income indicates low earnings quality
c. The findings are mixed with regards to earnings quality
d. There is no relationship between income smoothing and earnings quality
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- What would be a reason a company would want to overstate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show a decrease in overall profits D. none of the aboveWhat would be a reason a company would want to understate income? A. to help nudge its stock price higher B. to lower its tax bill C. to show an increase in overall profits D. to increase investor confidenceInflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.
- Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.Which of the following may reduce the effectiveness of ratio analysis? a. Highly diversified companies may have activities that obscure trends that may appear more clearly in single function companies. b. Management may use window dressing at the end of the year to improve apparent performance. c. Companies in the same industry may use different accounting practices which may indicate differing levels of performance that don't really exist. d. Book values may not be comparable from company to company because of the age of the asset, inflation, etc. e. All of these can reduce the effectiveness of ratio analysis.Questions: Does a low return on sales indicate a weak company? (Y/N). Explain your answer. Do greater Net sales always result in greater net income? (Y/N) Why? Examine the financial information above and comment on the item that you find interesting.
- Which of the following statements most likely describes a situation that would motivate amanager to issue low-quality fi nancial reports?A . Th e manager’s compensation is tied to stock price performance.B . Th e manager has increased the market share of products signifi cantly.C . Th e manager has brought the company’s profi tability to a level higher thancompetitors.What would be a reason a company would want to overstate income?A. to help nudge its stock price higherB. to lower its tax billC. to show a decrease in overall profitsD. none of the aboveMarket-based bonus schemes may be considered more appropriate from a PAT perspective in industries in which: successful strategies will not be reflected in accounting profits for a number of periods. the price/earnings ratio is commonly greater than 12. profits may be the subject of manipulation by managers. capital investment is not an important strategic decision.
- Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROIWhich of the following best describes the potential impact of business risk on Earnings Quality? Select one: a. Business risk is mostly composed of financial risk factors and it has minimal effect on earnings quality. b. Higher earnings quality is linked with companies more insulated from business risk. While business risk is not primarily a result of management’s discretionary actions, this risk can be lowered by skillful management strategies.' c. A higher level of earnings quality can be observed in the industries with high business risk, because higher risk means higher returns d. For managing business risk, the managers almost have no discretion, therefore business risk is not directly or indirectly related to earnings quality.Can you identify a possible explanation for the company’s declining profits? If so, what is it?
