Many firms recognize revenues at the point of shipment. This provides an incentive to accelerate revenues by shipping goods at the end of the quarter. Consider two companies, one of which ships its product evenly throughout the quarter, and the second which ships all its products in the last two weeks of the quarter. Each company’s customers pay thirty days after receiving shipment. Using accounting ratios, how can you distinguish these companies?
Answer to relevant Questionsa. If management reports truthfully, what economic events are likely to prompt the following accounting changes?Increase in the estimated life of depreciable assets Decrease in the uncollectible allowance as a percentage of ...Refer to the Creative Technology example on delaying write-downs of current assets. How much excess inventory do you estimate Creative Technology is holding in March 2005 if the firm’s optimal days’ Inventory is 100 ...In early 2003, Bristol-Myers Squibb announced that it would have to restate its financial statements as a result of stuffing as much as $3.35 billion worth of products into wholesalers’ warehouses from 1999 through 2001. ...What ratios would you use to evaluate operating leverage for a firm?Joe Fat cat, an investment banker, states: “It is not worth my while to worry about detailed, long-term forecasts. Instead, I use the following approach when forecasting cash flows beyond three years. I assume that sales ...
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