Question 1:
Question 2
Question
How the quality earning issue would be
identified?
Indicate whether U.S. Steel has any
earnings quality issues in any of the three
years ended December 31, 2018 and
indicated whether you would include or
exclude the amount(s) when evaluating
profitability. Discuss all possible earnings
quality issues and please explain your
reasoning
Definition of big bath
Answer
The earning quality issues would be identified
through the income statement with the
supports from balance sheet and cash flow
statement. For instance, if the cash flow from
operation is less than its net income, the
investor might suspects about the earnings
quality of the company. The
unexpected/massive increases in the net
income and company' asset account are the
good evidences for earning quality issues. In
addition, the Footnotes for each items in
balance sheet might disclose important
information to track the quality issues of
company's earnings
In three years from 2016 to 2018, USS
included the earning from investees and gain
on equity investee transaction into its
Operating Expense to reduce its net operating
expense and boost its operating income
leading to higher operating profitability.
Personally, all the income/gain or losses from
investee should be included in the Non-
Operating section rather than Operating
section. In 2018, the Net Income is bigger
than Net Operating Cash Flow due to the
huge rise in Change in Account Receivable
meaning the rise in net sales of USS company
is due to the rise of credit sales which could
rise an issues related to bad debt expense and
the rise of Allowance and Doubtful Account
The action of manipulating the earnings of the
company by writing off some of the assets of
the company in order to make the current
performance, financial position , profitability
of the company looking worse than they truly
are, so that the next quarterly performance
will appear better than they truly are.
When the manger taking big bath
How big bath affect current/ future
financial performance assessment?
When he/she know the company is
performance badly and couldn't meet the
profitability expectation. However, the
manager still want to get bonuses and earn the
recognition of his/her ability to boost the
performance of the company for the end-of
year performance, thus he/she will conduct
"Big Bath" strategy.
Since big bath is the action of writing-off
assets to make the current performance look
bad and the following performance look good
even though there is no improvement in
company performance. If the investor
suspects the company has taken a big bath,
he/she will think the financial position of
company should be better with higher asset,
and the future profitability will be adjusted to
be worse.
Question 4
A,
Question 6