INDIVIDUAL ASSIGNMENT

C O R P O R A T E V A L U A T I O N

Parth Chopra

(MS19GF012)
1) Accounting Earnings and True Earnings

Accounting earnings is another term for the company's recorded profits, or net earnings,
which are measured by taking total sales and subtracting the cost of doing business, such as
the cost of products sold, general administrative costs, depreciation, interest, taxes, etc.
Accounting earnings should not be confused with economic earnings, which calculate the
productivity of a business.

2) Why do firms manage earnings ?

Firms engaged in "earnings management" to raise profits do this by manipulating stock

rates, credit scores, enhancing the management picture prior to the shareholders 'meeting,
and the list will continue. The side effects include bankruptcy, prison, litigation, fines,
management being dismissed, of course, and if fraud is found. Thinking people to be dumb is
typically a poor practice.
Some firms use a particular form of earnings management to minimize income by applying
provisions and amortization policies to move this year's income towards next year's possible
losses, this strategy reduces risk, is called prudence, and is widely accepted, unless it goes
too far into tax evasions as well.

3) Techniques for Managing earnings ?

 Firms can plan investments and asset sales to keep earnings running smoothly.
 The principle of acknowledgment of revenue is an accounting concept that allows
revenue to be reported only when it is received. This ensures that revenue or profit
will be considered when services or goods are given to consumers regardless of when
payment is received. In other words, businesses do not have to wait until they collect
cash from their customers to report sales revenue. This is consistent with the accrual
basis for accounting.

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  When using the accounts receivable and the accounts receivable, sales and
expenditures are reported in the correct year. As basic as this is, it's also where the
problems begin. Early booking is one of the strategies used to inflate earnings.
 Businesses use accounting write-offs on a daily basis to compensate for losses on
properties due to specific situations. As such, write-offs typically include a debit to
the expense account and a credit to the corresponding benefit account on the
balance sheet. Each write-off situation can vary, but usually the expenses will also be
reported on the income statement, deducting from any sales already reported.
 Firms are required to build up capital for bad debt, product returns and other future
losses. Many companies are cautious in their forecasts in good years and use the
surplus reserves they have built up over the years to ease their earnings in other
years.
 Companies with significant marketable securities holdings or investments in other
companies also have such assets reported on their books at values well below their
market prices. Thus, the liquidation of such assets will result in significant capital
gains that will raise income over the period.

4) Adjustments to Income

Adjustments to income are tax deductions that can be made by anyone with wages that can
not be taxed. Considering "above - the-line" deductions as they are measured before the
adjusted gross income line on the tax form, changes to the income assess the total gross
income of the taxpayer before applying the regular, "below - the-line" deductions and help
minimize the amount of income from which they can be taxed thus it provides them the
benefit.

5) Adjusting for Acquisitions and Divestitures

Acquisition accounting may harm reported earnings for years after acquisition. The most
popular by-product of acquisitions, where purchase accounting is used, is amortization of
goodwill. This amortization may decrease the recorded net profit in subsequent periods,
while operating income will not be affected.

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When companies dispose of properties, they may produce income in the form of capital
gains. Infrequent divestments may be viewed as one-time products and overlooked, but
some companies divest assets on a regular basis. For these companies, it is possible to
disregard the revenue associated with the divestment, but to consider the cash flows
associated with the divestment, net of capital gains taxes, when calculating net capital
expenditures.