Which of the following may be signs of future problems for a company?
I. Inventories growing faster than sales.
II. Rapidly increasing debt to equity ratio.
III. Cash flow from operations is higher than net income.
IV. Current liabilities increasing faster than current assets.
A) I and III only
B) II and IV only
C) I, II and IV only
D) I, II and III only

Question

Quizplus · Accepted Answer

I, II, and IV are signs of potential future problems for a company. Inventories growing faster than sales may indicate unsold products. A rapidly increasing debt to equity ratio suggests the company is taking on more debt relative to its equity, which could be risky. Current liabilities increasing faster than current assets may indicate liquidity problems. However, cash flow from operations being higher than net income is generally a positive sign, indicating the company is generating more cash than it reports in profits.

Which of the Following May Be Signs of Future Problems