Series 79 practice questioneasyFinancial due diligence – quality of earnings
A quality of earnings analysis during financial due diligence is intended to:
- ADetermine the sustainability of a target’s earnings✓ Correct answer
- BAssess only the company’s cash flow statement
- CReview only the balance sheet
- DAudit the company’s tax returns
Explanation
Why A — Determine the sustainability of a target’s earnings
Quality of earnings analysis focuses on the sustainability and reliability of reported earnings, not just reviewing statements or tax returns in isolation. It evaluates recurring earnings and identifies anomalies.
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