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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Roger A. Babb who wrote (1397)1/25/1998 2:03:00 PM
From: Brooks Jackson  Read Replies (1) of 18691
 
Re DIGL, which dropped more than 50% in one day. Roger asked: "How could we have seen this coming?"

DIGL seems to have gotten in trouble counting unhatched Asian chickens. Then it had to restate earnings big time. (See press release quote at end of this post).

That makes me think that there might be other companies with similar problems about to surface. The factors to look for would be a substantial fraction of "sales" in Asia and accouting practices that book income when product moves to a distributor, before it is actually sold.

But -- how would one go about screening for such companies? Is there a name for this accounting trick? (I assume such a practice is GAAP even if it is essentially dishonest, dangerous and stupid -- no surprise there.)

Just a thought.

(Here's what the news release said:)

"The company's decision to restate the 1997 results of operations resulted from the discovery of certain errors in the timing of revenue recognition and a review of related accounting policies and procedures. The company also announced that after consideration of the uncertainty in various international markets, the company has instituted a policy of deferring recognition of revenues on sales to international distributors until the product is actually sold by each distributor to its end user customer. "
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