The third step in financial statement analysis is to assess the quality of the firm's financial statements.Which of the following is a question an analyst should ask when performing this step?
A) Are industry sales growing rapidly or slowly?
B) Do earnings include revenues that appear mismatched with the business model employed by the firm?
C) Does the industry include a large number of firms selling similar products?
D) What is the company's degree of geographical diversification?

Question

Quizplus · Accepted Answer

When assessing the quality of the firm's financial statements, an analyst should ask if the earnings include revenues that appear mismatched with the business model employed by the firm. This helps to identify any potential manipulation or inconsistencies in the financial statements. The other options (A, C, and D) are not directly related to assessing the quality of financial statements.

The Third Step in Financial Statement Analysis Is to Assess