Effects of Accounting Practices on Net Income

hanso6's picture
Rank: Baboon | 103


I often read that it is important to understand how certain accounting practices/changes affect net income. I am aware that accounting is a very complicated topic, however, are there specific things to watch out for that are usually used to sugarcoat or run down income?


Comments (4)

Nov 19, 2018

hanso6, way too quiet in here. What about these resources:

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  • Why the interest coverage ratio focuses on net operating income insted of unlevered free cash flow? focusing on NOI instead of UFCF? ...
  • Effect of special dividends on balance sheet PP&E. Most of this cash is used for an early return on equity for the sponsor. My question is, if (total ... dividend) > (Net Income), the difference should be decreasing book equity to balance the BS, correct? ... and modest leverage... assets 3.8bln, debt 3.0 bln, Eqty.8bln. Of that 3.8 assets,.8 is cash, rest is ...
  • Working in FIG (Financial Institutions Group)- An Overview. * Lower is better * Measure of operational efficiency Return on Average Assets (ROAA) = Net Income / Avg. ... Lets go ahead and start with banks 1) Banks How Do Banks Make Money? Net Interest Income (50-75% of ... effectively bank is using assets to generate income Efficiency Ratio = Non-Interest Expense / Net Revenues ...
  • inherit dads CA practice of 400K net or go for quant degree for trading quant or structuring. However I am having real changes of thought. My dad has a developed CA practice of ... he can take 200-300K net a year after taxes because he can play around with taxes. He has been urging ... route. Downside is Ill have to sit for CA exams do 2 years of training and I have never been a fan of the ...
  • More suggestions...

Hope that helps.

Dec 1, 2018

Hi Hans,

A few thoughts here:

  1. Watch out for different revenue recognition policies.
  2. Inventory methods can skew income higher/lower depending on an inflationary/deflationary environment.
  3. Uncertain tax positions can be easily manipulated to increase/decrease net income.
  4. Look out for fluffy seeming reserve balances that management can more easily judgementally fluctuate if needed.

Hope that helps.

    • 1
Dec 1, 2018

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