CONCLUSiON
Just as companies have myriad ways of exaggerating revenues, they follow a variety of approaches in downplaying expenses. Corporate managers make liberal assumptions about costs that may be capitalized, dilute expenses with one-time gains, and jump the gun in booking rebates from suppliers.
Sometimes they understate expenses through sheer sloppiness in their bookkeeping. Like corresponding techniques of aggressive revenue recognition, misleading reporting of expenses can often be detected by careful scrutiny of financial statements. To benefit from such insights, analysts must be disciplined enough to disbelieve the innocent explanations that companies routinely provide for ratios that in reality reveal trouble down the road.
Source:
Fridson M., Alvarez F.. Financial Statement Analysis. John Wiley & Sons, Inc.,2002. — 413 p. 2002
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