Which of the following is a "red flag" suggesting that a company may be in trouble?
A) A decline in days in inventory
B) An increase in dividend payout
C) A buildup of inventories
D) Cash flow from operations is higher than net income

Question

Quizplus · Accepted Answer

A buildup of inventories can suggest that a company is not selling its products as quickly as expected, potentially indicating declining demand or mismanagement.

Additionally, while the other options may be noteworthy and warrant further investigation, they are not necessarily red flags on their own. A decline in days in inventory, for example, could be a positive sign of efficient operations. An increase in dividend payout could simply be a strategic decision based on the company's financial position and goals. Cash flow from operations being higher than net income may indicate positive non-cash items influencing cash flow, which could potentially be a good thing.

Which of the Following Is a "Red Flag" Suggesting That