A sign of decreasing earnings quality is:
A)declining Cost of Goods Sold to sales ratio.
B)declining Gross Margin to sales ratio.
C)declining operating expenses to sales ratio.
D)increasing operating income to sales ratio.

Question

Quizplus · Accepted Answer

Declining Gross Margin to sales ratio is a sign of decreasing earnings quality as it indicates that the company is experiencing lower profitability on its sales. This could be due to various factors such as poor pricing strategies, higher costs of goods sold, and increased competition. Therefore, investors should be cautious while investing in such companies. Choices A, C, and D are incorrect as declining Cost of Goods Sold to sales ratio, declining operating expenses to sales ratio, and increasing operating income to sales ratio are signs of improving earnings quality.

A Sign of Decreasing Earnings Quality Is