Tuesday 18th December 2007

	Print
	Email
	Text size
	Comment

Games companies play

Public companies play a number of ‘games’ in order to improve their balance sheet in time for the year-end, claims research from consulting firm REL. The bad news is that these improvements are short-lived, with companies wiping them away by the first quarter of the new year.

Daniel Windaus, senior director of REL, tells GrowthBusiness: ‘If you have financial indicators that refer to one point in time, companies will make sure they reach their targets by that point. Management will get their bonus and investors will see the numbers they want, but it is not sustainable, and it is not the best thing for the company.’

REL’s study of 145 European public companies analyses their “days working capital” (DWC), or the company’s reported working capital divided by an average day’s turnover. The companies’ DWC decreased by 6.9 per cent in the fourth quarter of 2006 compared to the previous quarter, indicating that they had less money tied up in relation to their sales, pleasing analysts and investors.

However, in the first quarter of 2007 companies were back to square one, with an increase in DWC of 6.9 per cent.

The study concedes that some industries are seasonal and can justify their uneven performance. But it goes on to argue that others are manipulating their results purely to impress analysts or boost managers’ bonuses.

For example, construction and engineering companies’ DWC decreased 23.6 per cent in the fourth quarter of 2006, but followed this up with a surge of 109.6 per cent in the following quarter. Another industry guilty of game-playing, according to the figures in REL’s study, is IT services, which improved its DWC by 3.3 per cent in the final quarter of last year, followed by a deterioration of 34 per cent.

Click here to read more about the games companies play to improve their year-end results.

User Comments

There are currently no comments on this post.

Related Articles

• Wyatt acquires benefits consultancy
• HML confirms southwest deal
• Relief over R&D tax scheme
• Investing outside the family business
• Management buys Hamilton Rentals

People who read this article also read ...

• Insurance group taps banks for £150 million
• Keep out: accountants at work
• Private equity ‘to stagnate’
• Entrepreneurs pessimistic about Budget
• Medium-sized companies have biggest cash flow headache

Related sections

Interesting links

• Cash Shells on AIM provides a comprehensive overview of cash shells on AIM, companies that have become a significant feature on the AIM landscape.
• Middle East and Beyond on AIM 2008 - a closer look into AIM companies from the Middle East and surrounding regions
• VCT special research report - an in-depth analysis of the VCT sector
• The AIM Guide 2008 - the Spring guide of every AIM listed company
• Spotlight on AIM 2008 research report – find out the best and worst performing stocks of last year
• New Issues on AIM 2007/08 research report - find out which international companies have floated and which sectors are dominating
• MandAdeals.co.uk - covering latest mergers and acquisitions
• FT Guide to Personal Tax - advice to completing your tax return
• Director's Salaries on AIM 2007 research report - a detailed look at directors' average remuneration
• Businessxl magazine for entrepreneurs of fast-growth companies
• Aimguide.co.uk - guide to the Alternative Investment market