In comparisons of a multinational firm's reported foreign profits with domestic profits, caution must be exercised. This same caution must also be applied when analyzing the reported profits of the firm's various subsidiaries. Only coincidentally will these reported profits correspond to actual profits.
a. Describe five different means that MNCs use to manipulate reported profitability among their various units.
b. What adjustments to its reported figures would be required to compute the true profitability of a firm's foreign operations so as to account for these distortions?
c. Describe at least three reasons that might explain some of these manipulations.