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Which of the following is not an indicator of a potential going-concern problem?

a. Negative trends in profitability.

b. External matters increasing regulatory requirements.

c. Significant changes in competition.

d. An Altman Z-score above 3.0.

1 Answer

4 votes

Final answer:

An Altman Z-score above 3.0 is not an indicator of a potential going-concern problem. Negative trends in profitability, external matters increasing regulatory requirements, and significant changes in competition are indicators that can suggest potential going-concern problems.

Step-by-step explanation:

An Altman Z-score is a financial metric used to assess the probability of a company going bankrupt. It combines various financial ratios to determine the financial health of a company. The Altman Z-score is calculated using factors such as profitability, asset turnover, leverage, liquidity, and solvency.

A higher Altman Z-score indicates a lower probability of a company experiencing financial distress or going out of business. In this context, an Altman Z-score above 3.0 is considered favorable and would not be an indicator of a potential going-concern problem.

On the other hand, negative trends in profitability, external matters increasing regulatory requirements, and significant changes in competition are indicators that can suggest potential going-concern problems. They may signal financial difficulties, market challenges, and increased risks that can affect a company's ability to continue operating.

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