http://www.reuters.com/article/idUSTRE6205TD20100301?type=globalMarketsNews
Summary:
This article is about McDermott International Inc.’s new quarter report about its financial status. From what they estimate, this company was going to have a 55.7 million of increase in their net income. However, in reality, they did not rise, but fell instead. Stepping in 2010, the shares of this company fell three percent because of the investors have back up and lower their expectations for this company. As the shares of McDermott fell to be around $23 to $28, the explanation of their poor performance is that they believe their businesses are still in a challenging economic environment. It would be a challenge for this company to meet its goals in the mean time.
Connections:
I n Chapter four, we have talked about revenue recognition. In class we have all go over the rules that we need to follow when we are recognizing our earnings. In fact we actually looked at a case where a company has claim to have revenue that they have not earned yet to make their financial statements to look good and attract buyers. In a recession period like now, it would be difficult to maintain a business. If business such as McDermott International Inc. lies to the investors and claim the revenue that has not yet earn, their shares may not go down and earn a profit from another way such as selling it. When all the businesses that are not doing that well lies on their performances, then the economy of the world will crash because people invested in something that are not exist.
Personal Reflection:
Realizing the relationship between the net earnings of the company and the shares of the company, it would be really hard to announce that the company`s performances are not as good as the previous quarter or what they have expected. Since businesses are depending on the investor’s money to cover their daily operation expenses and the amount of investors are determined by the performance of the company. When the results are not that great that also mean there will be lesser investors put money in the company and it would make the corporation in a bad situation. However, even though no one likes to lose in the business world, but it is more important to play fair so that the economy does not crash.
1 comment:
That was a very bold point: play fair so that the economy won't crash again. I am 100% sure that no one in the world will want to fall back into the slump again, so why are companies still understating expenses/ overstating revenues to risk the life of the market? It's ridiculous. The reason why many companies are doing so is because they want themselves and their company to prosper and be in a very good financial status like they were before. It really takes a lot of time for an economy to recover from such a recession. Companies need to be fair with they reports, and investors should have a positive attitude of trust towards the company they are investing in. I know it is hard for an investor to keep investing in a slumping company. I guess that is just how the business world is.
-Clement Ip
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