Discuss the merits of bernsteins arguments

Assignment Help Corporate Finance
Reference no: EM13214512

The following quote is taken from an article (by L. Bernstein) scrutinizing use of reserves to recognize future costs and losses.

The growing use of reserves for future costs and losses impairs the significance of periodically reported income and should be viewed with skepticism by the analyst of financial statements. That is especially true when the reserves are established in years of heavy losses, when they are established in an arbitrary amount designed to offset an extraordinary gain, or when they otherwise appear to have as their main purpose the relieving of future income or expenses properly chargeable to it. The basic justification in accounting for the recognition of future losses stems from the doctrine of conservatism that, according to one popular application, means that one should anticipate no gains, but take all the losses one can clearly see as already incurred.

Required:

a. Discuss the merits of Bernstein's arguments and apprehensions regarding reserves.

b. Explain how this perspective can be factored into an analysis of past earnings trends, estimates of future earnings, and the valuation of common stock.

c. Cite examples of such reserves-you can draw on those in the chapter.

Reference no: EM13214512

Questions Cloud

What is the cumulative depreciation through the end of year : Your company has purchased a large new truck tractor for over-the-road use (asset class 00.26). It has a cost basis of $180,000. With additional options costing $15,000, the cost basis for depreciation purposes is $195,000. Its MV at the end of fi..
Compute the depreciation schedule : An asset is purchased for $150,000. The asset is depreciated by using MACRS depreciation and a 5-year recovery period. At the end of the third year of use, the business changes its product mix and disposes of the asset.
Depict an orbital picture for acetylene : draw an orbital picture for acetylene C2H2 label each bond type and indicate type of orbitals involved in each bond.
What creative programs and initiatives to stimulate the us : Feel free to include your very own original stimulus plan and/or ideas in your response, which can also be used to enhance existing platforms from candidates and/or other influential thought leaders.
Discuss the merits of bernsteins arguments : Discuss the merits of Bernstein's arguments and apprehensions regarding reserves and explain how this perspective can be factored into an analysis of past earnings trends, estimates of future earnings, and the valuation of common stock.
State what about the hybridization of the terminal carbons : Is the central carbon atom sp2- or sp-hybridization? What about the hybridization of the terminal carbons? What shape do you predict for allene?
Compute the volume of ambient pressure : Assuming that the temperature is 293K and using Redlich­-Kwong equation of state, calculate the volume of ambient pressure (1 Bar) nitrogen that can be compressed into the cylinder.
What price should this monopoly charge to maximize profit : A monopolistic firm faces the following demand curve. Q = 7800 -12 P This monopoly's cost function has been estimated as follows: TC = 460,000 + 50 Q a. What price should this monopoly charge to maximize its profit b. What would be its equilibrium ..
What is the payback period of new investment : What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00 and what is the payback period of new investment

Reviews

Write a Review

Corporate Finance Questions & Answers

  Impact of the global economic crisis on business environment

This paper reviews the article of ‘the impact of the global economic crisis on the business environment' that is written by Roman & Sargu (2011).

  Explain the short and the long-run effects on real output

Explain the short and the long-run effects on real output, price, and unemployment

  Examine the requirements for measuring assets

Examine the needs for measuring assets at fair value in accounting standards

  Financial analysis report driven by rigorous ratio analysis

Financial analysis report driven by rigorous ratio analysis

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Stock market project

Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports.

  Write paper on financial analysis and business analysis

Write paper on financial analysis and business analysis

  Intermediate finance

Presence of the taxes increase or decrease the value of the firm

  Average price-earnings ratio

What is the value per share of the company's stock

  Determine the financial consequences

Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose

  Prepare a spread sheet model

Prepare a spread sheet model for the client that determines NPV/IRR with and without tax.

  Principles and tools for financial decision-making

Principles and tools for financial decision-making. Analyse the concept of corporate capital structure and compute cost of capital.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd