What does it mean to smooth earnings across time

Assignment Help Finance Basics

Reference no: EM131411201

Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they expect to experience, which must be estimated at the end of every period. By changing this estimate, which in turn changes one of the largest expenses on their income statement, financial companies can manage net income. Tilson specifically cites Farmer Mac, the agency created by the federal government to provide funds in the agricultural lending market, which many analysts believe smooths its earnings across time by simply changing its estimate on loss rates. REQUIRED:

a. What does it mean to "smooth earnings across time"? How might a financial company practice this strategy, and why might it engage in this activity?

b. Earnings smoothing has also been associated with conservatism. Why?

Reference no: EM131411201

Questions Cloud

Design a hr succession plan for a health care organization : Research and design a Human Resources Succession plan for a health care organization.You need to support your work with at least 4 academic or professional peer-reviewed sources published within the past 5 years.

Find approximate confidence intervals for the proportion : Find approximate 95% confidence intervals for the proportion and the percentage of adult Americans who would have said in June 2001 that they think genetically modified food is not safe.

What is political platform : The Republican Party develops in the 1850s and by 1860 they have a President in the White House. They are a hodge-podge of other fragmented political parties that fell apart in the 1840s and early 50s. Who makes up the Republican Party and what ..

Consequences of popular sovereignty : Stephen Douglas' ideas for the Kansas-Nebraska Act of 1850 emphasized popular sovereignty as the method for deciding whether or not slavery would go into the western territories. What were the consequences of popular sovereignty in these areas?

What does it mean to smooth earnings across time : What does it mean to "smooth earnings across time"? How might a financial company practice this strategy, and why might it engage in this activity?

How organization could use the given sources of bias : Explain how the organization could use each of the given sources of bias to help produce the results it wants:- Selection bias.- Nonresponse bias.

History up to the era of reconstruction : Write a paper about an event in the period of U.S. history up to the era of Reconstruction. This paper must illustrate the perspectives of a specific person or group of people (e.g. Pocahontas) within a historically marginalized population.

Compute the net adjustment recorded by unilever : Compute the net adjustment recorded by Unilever for inventory market value changes during 2008.

Discuss why you want to be a social worker : Discuss why you want to be a social worker. What personal, academic, volunteer and/or work experiences have influenced this choice? If you have worked in other fields, please discuss the reasons for this change.hat attributes do you possess that co..

User Account

All Pages