When assessing earnings persistence it is important to analyze discretionary expenditures. Which of the following statements are correct?
I. Research and Development is generally considered a discretionary expenditure
II. Decreased discretionary expenditures should always be taken as a positive indicator that the company is getting costs under control
III. Advertising expenditures can be considered discretionary expenditures, which often have implications for future sales
IV. Absolute levels of discretionary expenditures are more important than the level of expenditures relative to sales

Question

Quizplus · Accepted Answer

Research and Development and Advertising expenditures are generally considered discretionary and can impact future performance. Decreased discretionary spending is not always positive, as it might indicate underinvestment in future growth. Relative levels of expenditures to sales are often more insightful than absolute levels.

When Assessing Earnings Persistence It Is Important to Analyze Discretionary