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Investopedia explains 'Accounting Cushion'
You may be wondering why any company would want to understate income in any period. The reason is that some company’s are expected to be very stable, and investors buy their stocks for that reason. Investors may expect company ABC to grow at 4% every period. If the company instead grows 6% in the first period, and declines 1% in the second, it would be bad for the perception of the stock. Investors may require a higher risk premium, therefore driving down the value of the stock. Management would rather understate the 6% growth and overstate income in the second period to smooth out the income. This may seem less harmful then some other, but misleads the investing public about the true stability of a company’s income stream.
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