ex-Dil,
I don't see how accounting tricks changes growth rates.
Here's a hypothetical that illustrates the explanation to the mystery.
Suppose you get an order in for $10 MM. Now suppose under the old accounting rules you get to recognize this as revenue, but under the new rules you recognize only $2.5 MM for four quarters. Now suppose that this sequence of events occurs every quarter, but each quarter the new orders increase by $2 MM.
Under the old rules you would recognize $10MM, $12MM, $14MM and $16MM respectively, or $52MM for the year.
Under the new guidelines you would recognize $2.5MM, $5.5MM, $9 MM and $13MM respectively for each quarter, or $30MM for the year.
This illustration shows that revenues would be cut by 42.4%, and with it, the earnings attributable to these revenues.
Now suppose the revenues for the previous year was $25 MM. Under the first scenario revenue growth would be 108% (25 --> 52), but under the second it would be only 20% (25 --> 30).
What happened to the $22MM difference? Assuming that the customer paid cash in advance, it would be recorded as deferred revenues. This illustrates why cash flow analysis is so important.
Hope this helps.
TTFN,
CTC |
