Canadian Securities Course (CSC) Level 2 Practice Exam

Which type of trends in a company suggests cost-effectiveness and difficulty in controlling costs, respectively?

1. Rising trends and falling trends

2. Falling trends and stable trends

3. Stable trends and increasing trends

4. Decreasing trends and volatile trends

The correct answer is: Rising trends and falling trends

The correct answer identifies that rising trends suggest cost-effectiveness, while falling trends indicate difficulty in controlling costs. When a company experiences a rising trend in revenues or profits, it often suggests that the organization is operating efficiently, managing its resources well, and effectively controlling its costs relative to its income. This efficiency contributes to overall cost-effectiveness, as the company can generate a healthy margin between its revenues and expenditures. Conversely, falling trends can signify that a company is struggling with cost control. This may arise due to increased expenses, reduced revenues, or challenges in maintaining profitability. When costs rise or revenues decline, the situation can point to inefficiencies within the organization or adverse external conditions affecting its financial health. Other options do not accurately pair these trends with their respective implications regarding cost-effectiveness and cost control challenges. For example, stable trends would denote a consistent performance but not specifically highlight issues with cost management, while volatile trends would suggest unpredictability rather than a clear direction regarding cost efficiency.