Income Smoothing

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Dictionary Says

Definition of 'Income Smoothing'

The use of accounting techniques to level out net income fluctuations from one period to the next. Companies indulge in this practice because investors are generally willing to pay a premium for stocks with steady and predictable earnings streams, compared with stocks whose earnings are subject to wild fluctuations.

Examples of income smoothing techniques include deferring revenue during a good year if the following year is expected to be a challenging one, or delaying the recognition of expenses in a difficult year because performance is expected to improve in the near future.

Investopedia Says

Investopedia explains 'Income Smoothing'

Income smoothing does not rely on "creative" accounting or misstatements - which would constitute outright fraud - but rather on the latitude provided in the interpretation of GAAP.

An often-cited example of income smoothing is that of loan-loss provisions by banks, since they have considerable leeway in determining this provision. Banks may be tempted to understate annual loan-loss provisions in years of low profitability, and may be inclined to overstate them during highly profitable periods.

Search results for

'Income Smoothing'

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    ... results". When income smoothing becomes excessive, the SEC may issue fines.
    Unfortunately, there's not much individual investors can do. ...

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  • The Ghouls And Monsters On Wall Street

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    ... Risqué accounting is sometimes used by firms for "income smoothing" – making
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    ... Bonds can also be very efficient at smoothing out volatility and preserving capital.
    The regular income distributions bonds generate help cushion downside ...

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    ... If anything I would expect some income smoothing from consumers, and therefore
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  • A Fixed-Income Portfolio For The Masses

    http://stocks.investopedia.com/stock-analysis/2010/A-Fixed-Income-Portfolio-For-The-Masses-CSJ-SHY-BWX-JNK0301.aspx
    ... Bonds can also be very efficient at smoothing out volatility and preserving capital.
    The regular income distributions bonds generate help cushion downside ...

  • CFA Level 1 Study Guide - Red Flags - Shenanigans | Investopedia

    http://www.investopedia.com/exam-guide/cfa-level-1/red-flags/what-are-shenanigans.asp
    ... Real Estate; Statistics; Stocks; Taxes; Venture Capital. More News ». Investing;
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  • How To Evaluate Pension Risk By Analyzing Annual Costs

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    ... GE is unique because its plan contributed income whereas most plans add ... costs that
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  • 5 Bond ETFs For The Masses

    http://stocks.investopedia.com/stock-analysis/2011/5-Bond-ETFs-For-The-Masses-CSJ-SHY-BWX-JNK-AGG1104.aspx
    ... Bonds can also be very efficient at smoothing out volatility and preserving capital.
    The regular income distributions bonds generate help cushion downside ...

  • 5 Bond ETFs For The Masses

    http://stocks.investopedia.com/stock-analysis/2012/5-Bond-ETFs-For-The-Masses-CSJ-SHY-BWX-JNK-AGG0118.aspx
    ... Bonds can also be very efficient at smoothing out volatility and preserving capital.
    The regular income distributions bonds generate help cushion downside ...

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