1. All firms are required to expense R&D costs incurred each period. Some firms spend very large sums on R&D, while others spend little or nothing on this area. Why is it important to observe whether a firm has substantial or immaterial R&D expenses?
2. Indicate some possible uses of a reliable model that can be used to forecast financial failure.
3. Describe what is meant by a firm’s financial failure.
4. According to the Beaver study, which ratios should be watched most closely, in order of their predictive power?
5. According to the Beaver study, three current asset accounts should be given particular attention in order to forecast financial failure. List each of these accounts and indicate whether they should be abnormally high or low.