What is a 'Big Bath'

A big bath is the strategy of manipulating a company's income statement to make poor results look even worse. The big bath is often implemented in a bad year to enhance artificially next year's earnings. The big rise in earnings might result in a larger bonus for executives. New CEOs sometimes use the big bath so they can blame the company's poor performance on the previous CEO and take credit for the next year's improvements.

BREAKING DOWN 'Big Bath'

For example, if a CEO concludes that the minimum earnings targets can't be made in a given year, he/she will have an incentive to move earnings from the present to the future since the CEO's compensation doesn't change regardless if he/she misses the targets by a little or a lot. By shifting profits forward - by prepaying expenses, taking write-offs and/or delaying the realization of revenues - the CEO increases the chances of getting a large bonus the following year.

RELATED TERMS
  1. Take A Bath

    A slang term referring to the situation of an investor who has ...
  2. Quality Of Earnings

    The amount of earnings attributable to higher sales or lower ...
  3. Earnings

    The amount of profit that a company produces during a specific ...
  4. Signing Bonus

    A financial award, often issued in one or two lump-sum payments, ...
  5. Cash Bonus

    A lump sum of money awarded to an employee, either occasionally ...
  6. Big Four (or Big Five, Big Six, ...

    The largest accounting firms in the United States as measured ...
Related Articles
  1. Investing

    Bed Bath & Beyond Trades Ex-Dividend Wednesday (BBBY)

    Bed Bath & Beyond will send its dividend payment on July 19 to shareholders of record as of June 17.
  2. Investing

    Bed Bath & Beyond Rises Despite Weak Earnings

    Bed Bath & Beyond (NASDAQ: BBBY) closed up 1.5% on Thursday after falling nearly 5% earlier in the day following weaker-than-expected first-quarter earnings. The retailer's revenue stayed flat ...
  3. Investing

    Bed Bath & Beyond Stock Rises Ahead of Q1 Earnings (BBBY)

    Wall Street expects the specialty retailer to deliver an increase in revenue with a decline in profits.
  4. Investing

    Bed Bath & Beyond Falls 7% After Q1 Earnings Miss (BBBY)

    The specialty retailer not only reported first quarter earnings that missed Wall Street's estimates, but surprised with a decline in revenue.
  5. Investing

    Bed Bath & Beyond Buys E-tailer One Kings Lane

    Home furnishings and accessories retailer Bed Bath & Beyond (NASDAQ: BBBY) revealed Tuesday that it had acquired privately held One Kings Lane, a "flash sale" e-commerce site for high-end furniture ...
  6. Investing

    Common Clues Of Financial Statement Manipulation

    Search for the "bloody" fingerprints in accounting crimes.
  7. Managing Wealth

    A Guide To CEO Compensation

    Make sure you assess whether a CEO has a stake in doing a good job for you, the shareholder.
  8. Investing

    Bed Bath & Beyond Faces Growing Investor Anger

    Investors are losing their patience with how the management of Bed Bath & Beyond (NASDAQ: BBBY) is running the company. At Friday's annual shareholder meeting, they voted to approve two proposals ...
  9. Investing

    Tepid Third Quarter Results Could Provide Value

    Bed, Bath and Beyond recently turned in lackluster third quarter results which compounds additional, recent tepid results. Is this a long-term opportunity or a value trap?
  10. Investing

    What to Expect From Big Lot's Earnings (BIG)

    With BIG shares up 8% so far on the year, including 6% gains in the past month, some investors have made up their minds.
RELATED FAQS
  1. What is earnings management?

    Before diving into what earnings management is, it is important to have a solid understanding of what we mean when we refer ... Read Answer >>
  2. What is the difference between the yield ratio and the dividend payout ratio?

    Learn how the activities of daily living are measured by health-care professionals to determine an individual's disability ... Read Answer >>
  3. What is the difference between earnings and revenue?

    Understand how a company makes revenue and how it makes earnings. Learn the difference between revenue and earnings and how ... Read Answer >>
  4. How rapidly can expanding sales reduce a firm's earnings?

    In order to operate and make money, a company must spend money. Revenue - the dollar amount of sales - can be seen on a company's ... Read Answer >>
  5. What is the difference between earnings and income?

    See how earnings and income are different and when they are used in relation to personal finance versus a business' financial ... Read Answer >>
  6. Why is overhead cost allocation sometimes manipulated on an income statement?

    Learn why companies sometimes manipulate overhead costs to boost the appearance of overall profitability, and other reasons ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center