Question 5.KC.6: When conducting an analysis of financial statements, it is i...
When conducting an analysis of financial statements, it is important to take corrective action by attacking the
a. Underlying cause of the problems.
b. Symptoms of the problem as indicated by the effect ratios.
c. Profit ratios first and foremost.
d. Bankers.
a. Correct. It is the cause of the problem, rather than the symptoms, that should be attacked.
b. Incorrect. When conducting an analysis of financial statements, it is important to take corrective action by attacking the root cause of the problem rather than the symptoms. Attacking the symptoms will provide only temporary solutions.
c. Incorrect. Focusing on profits is always a good idea, but to correct a company’s problems one should examine the causes of the problems.
d. Incorrect. While sometimes we can blame problems on bankers, fixing a company’s problems will rarely be helped by antagonizing their bankers.