CMA Final · Strategic Performance Management and Business Valuation · Corporate Failure
Which of the following is a recognised qualitative warning sign of corporate failure, as distinct from a ratio-based indicator?
Frequent changes in top management and auditors, along with delayed financial reporting, is a qualitative warning sign of failure. The other options are all quantitative ratios, which relate to liquidity, coverage and leverage.
- AFalling current ratio
- BDeclining interest cover
- CFrequent changes in top management and auditors with delayed financial reportingCorrect
- DRising debt-equity ratio
Explanation
Qualitative signs include management turnover, auditor changes, delayed accounts and deteriorating employee morale. Current ratio, interest cover and debt-equity ratio are all quantitative ratio measures.
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