After studying this chapter, you should be able to:
Investors usually look to net income as a key indicator of a company's financial health and future prospects. The following graph shows the net income of one company over a seven-year period.
The company showed a pattern of consistent profitability and even some periods of income growth. Between years 1 and 4, net income for this company grew by 32 percent, from $31 million to $41 million. Would you expect its profitability to continue? The company had consistently paid dividends and interest. Would you expect it to continue to do so? Investors answered these questions by buying the company's stock. Eighteen months later, this company—W. T. Grant—filed for bankruptcy, in what was then ...