CFA Practice Question

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CFA Practice Question

Customers use the financial statement information of suppliers to determine whether the supplier's ______

A. rate of return is too high.
B. taxes should be decreased.
C. product warranties are reliable.
Correct Answer: C

Customers want to know if suppliers are likely to have future resources that are adequate to honor product warranties, in case the customer experiences problems with goods purchased.

User Contributed Comments 7

User Comment
Suri why not rate of return?
sevaa1 We, customers, don't really care what the rate of return is for the supplier. What if their rate of return is based solely on equity investments and their operations suck? All we care about is that they pay us and do what they promised; i.e. product warranties are reliable.
Masterkang Have you ever cared about the Return of Equity for The GAP when you bought clothes?
dobrekone Masterkang: no, but he ran through their financial statement information. LOL
rethan I would argue that the ROR is scrutinized as well. Say I am a business whose is a customer of a supplier. If I see that the ROR of my supplier is high, I would likely to try to negotiate with my supplier to see if terms can be re-negotiated so that I can get supplies at lower cost(Companies, especially ones in financial trouble do this all the time).
RCapistrano Rethan, I would agree with your statement if the question states something about negotiating prices for supplies. However, if we are faced with a simple question as posted, then we can't add other assumptions.
vatsal92 I. Customers aren't really concerned regarding how much profit is the supplier making.
II. Taxes has nothing to do with this at all...
II. Product warranties because it will ensure that they are proteced from any defects and loss that accrues due to use of the defective product.
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