Question
A company reports positive net income for several periods, but CFO stays persistently negative. What is the likely warning sign?
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Answer
Poor earnings quality.
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Question
A firm shows positive CFI mainly because it sold a large amount of PP&E. Why is this a cash-flow red flag?
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Answer
It may be generating cash by selling assets.
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Question
A US GAAP filer avoids disclosing information that would let you assess the LIFO reserve. What concern should an analyst have?
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Answer
Inventory comparability and profit quality are harder to assess.
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Question
A company reports a large inventory write-down. Why might that matter for earnings quality?
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Answer
Prior inventory was likely overstated.
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