Earnings are considered to be of lower quality if
A)cash flow from operating activities is greater than net earnings.
B)cash flow from financing activities is less than net earnings.
C)cash flow from operating activities is less than net earnings.
D)cash flow from investing activities is less than net earnings.

Question

Quizplus · Accepted Answer

Cash flow from operating activities represents the actual cash generated by a company's core business operations, whereas net earnings are subject to various accounting adjustments and non-cash expenses. If the cash flow from operating activities is less than net earnings, it suggests that the company's earnings may not be sustainable as they are not backed by strong operating cash flows. This may indicate that the company is not generating enough cash from its operations and may require external financing or may have to rely on non-operating activities such as investing or financing to meet its cash needs. Hence, earnings are considered to be of lower quality when cash flow from operating activities is less than net earnings.

Earnings Are Considered to Be of Lower Quality If