Are U.S. Companies Gaming the System with Balance Sheets Tricks?
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As we head into year-end, the "game" is on in when it comes to balance sheet manipulation. According to REL's research, which examined the working capital management performance of 979 of the largest publicly-traded companies in the U.S., nearly half of all companies in the study showed evidence of year-end gamesmanship.
The report says many large U.S. companies artificially improving their balance sheets by manipulating receivables, payables, and inventory, according to the new study.
To boost receivables, they often increase incentives for sales staff and extend payment terms to get customers to buy more. At the same time they strong-arm other customers into paying early. On the payables side, they take a wide range of actions that put tremendous strain on their supplier relationships
Their efforts do have a positive impact in Q4, the study found, but these companies pay a harsh price in Q1, when working capital performance bounces back to even worse levels than before. REL notes companies improved working capital performance by 10 percent in Q4 2011, adding $52 billion to their balance sheets, or an average of $111 million per company. However, in Q1 of 2012, these same companies saw working capital rebound dramatically, worsening by 11 percent, or $53 billion, an average of over $113 million per company.
The report says many large U.S. companies artificially improving their balance sheets by manipulating receivables, payables, and inventory, according to the new study.
To boost receivables, they often increase incentives for sales staff and extend payment terms to get customers to buy more. At the same time they strong-arm other customers into paying early. On the payables side, they take a wide range of actions that put tremendous strain on their supplier relationships
Their efforts do have a positive impact in Q4, the study found, but these companies pay a harsh price in Q1, when working capital performance bounces back to even worse levels than before. REL notes companies improved working capital performance by 10 percent in Q4 2011, adding $52 billion to their balance sheets, or an average of $111 million per company. However, in Q1 of 2012, these same companies saw working capital rebound dramatically, worsening by 11 percent, or $53 billion, an average of over $113 million per company.
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