If the target firm's ratio of bad debt reserves as a percent of projected revenue is increasing,the analyst can be confident that the firm is boosting revenue by not reserving enough to cover probable future losses.

Question

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An increasing ratio of bad debt reserves as a percent of projected revenue suggests that the firm is setting aside more reserves relative to its revenue, indicating caution rather than boosting revenue by under-reserving.

If the Target Firm's Ratio of Bad Debt Reserves as a Percent