NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
Which of the following is generally regarded as a positive indicator of a company's management quality when conducting qualitative analysis?
A consistent record of allocating capital to earn returns above the cost of capital, along with transparent disclosures, indicates good management quality. Unexplained auditor changes, non-arm's length related-party dealings and late filings are red flags for governance.
- AA consistent track record of capital allocation delivering returns above cost of capital with transparent disclosuresCorrect
- BFrequent changes of statutory auditors without stated reasons
- CLarge related-party transactions on non-arm's length terms
- DRepeated delays in filing financial results
Explanation
Management quality is judged by capital allocation discipline, transparency and track record. Unexplained auditor changes, non-arm's length related-party dealings and delayed filings are governance red flags.
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