BA 3340 Lecture Notes - Lecture 99: Earnings Management, Income Statement, Cash Flow
Document Summary
Ebit, ebitda and other measures of pro6tability are higher for fifo 6rms for the simple fact that cost of goods sold are based on past, lower costs of inventory. It depends whether fifo someames leads to higher earnings and inventory and someames does the opposite apply. If companies are giving diberent lifeames to their assets, it needs to be adjusted for. See p. 441 for ways to do that. An analysts could esamate the average age of the assets and the average depreciable lives as seen on p. 441. Provisions the absolute amount of the provision, the ame to sehlement and the discount rate used to measure provisions at fair value may all have a signi6cant ebect on the total expense recognized in the income statement. A ceo is paid 20% of ebit above 20 millions. If the ceo wants to maximize his bonuses he prefers a high discounang factor when discounang provisions.
