A company may want to increase its profits to increase its share value in the market, to improve credit worthiness of the company, to get more public exposure, to prevent itself from takeovers and to have a bargain position while making acquisition deals.
- Inflate sales – Double the units of sale or triple it as per need. Then at the end of the financial year, just reverse it showing it as sales return. Now, how the profit is inflated? In quarterly results of the company, the profit is inflated thereby increasing credit worthiness which can be used to dominate acquisition deals or further public issues.
- Charge less depreciation – Depreciation is a non-cash flow. So it can be modified to any value by making a policy change in the books. A reduction in depreciation means more profit.
- Convert long term to short term assets – During revaluation of short term assets, a part of fixed assets can be transferred to current assets (i.e. short term assets) and can be revalued and shown as an income in the P/L account to inflate profit further. Read More »
WHAT WAS THE SCAM?
Coal block is the largest political scandal till date and is referred to as the “Mother of all scams”.
Coal blocks allocations by the government between 2004 and 2009 were found to be issued without competitive bidding and at very low prices because of which government suffered a loss of roughly ₹ 10 Lakhs Crores but further amended to ₹ 1.85 Lakhs Crores by the CAG in its final draft report. Read More »
Rupee had fallen an all-time low on 28th August 2013 at 68.85 and now it is appreciating and currently standing at 61.13 as on 10th December 2013. Underlining principle is demand and supply which we all know but let me get to the real situation to explain the reasons in as concise manner as possible. Read More »
As we all know, financial ratios are used to analyze the financial performance of a company. For this purpose many types of ratios are used like liquidity ratio which tells us the ability of a company to pay back its short term obligations and Debt ratio which tells us the mix of equity and debt. Let’s discuss each type of ratio and what purpose they serve in analyzing the statements. Read More »