Series 79 practice questionmediumAdvanced Financial Analysis
Which of the following best describes a red flag that may arise from due diligence in a merger?
- AHigh historical revenue growth
- BUnusually aggressive revenue recognition policies✓ Correct answer
- CStable cash balances
- DModest capital expenditure requirements
Explanation
Why B — Unusually aggressive revenue recognition policies
Aggressive revenue recognition can inflate reported earnings and obscure financial health. Overlooking this can lead to overestimating the target’s value or underestimating deal risks.
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