Asked by Daniil Yagolnikov on Jun 25, 2024
Verified
As transitory or value-irrelevant components become a larger part of a firm's reported earnings,which of the following effects would you not expect to witness?
A) The quality of those reported earnings is eroded.
B) The firm's stock price rises in the year such components are reported proportionate to their impact on income.
C) Reported earnings become a less reliable indicator of the company's long-run sustainable cash flows.
D) Earnings are a less reliable indicator of the firm's fundamental value.
Transitory Components
Elements affecting financial statements or economic conditions that are expected to be temporary and not indicative of ongoing future performance.
Value-Irrelevant
Financial information or factors that do not impact an investor's or decision maker's assessment of a company's value.
Reported Earnings
The net income that a company reports to its investors and shareholders, often found on its income statement.
- Gain insight into the influence of accrual accounting on financial information presentation, alongside its association with cash flows and earnings.
Verified Answer
Learning Objectives
- Gain insight into the influence of accrual accounting on financial information presentation, alongside its association with cash flows and earnings.
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