| dc.description.abstract |
The purpose of this case is to enable students to determine the quality of a corporation’s current earnings by detecting red flags, which could indicate changes in a company’s fortunes that might not be readily identifiable from the company’s financials. Quality of earning analysis is one of the tools utilized by stock market investors in assessing a company’s current and future revenue generating ability. Investors, as in this case, do recognize that the figures reported in the financial statements are not always wholly representative of the company’s current economic progress and consequently might fail to give a realistic picture of the future economic course. Thus investors make use of the several earnings quality analysis techniques available, identification of red flags being one of them. A lengthy audit report, unusual fluctuations in accounts receivable or intangible assets, decline in margins, unusual increase in borrowing are just some of the possible red flags that the investors/decision-makers can identify. These signals might not necessarily indicate a deteriorating situation but in the case of Emco Industries limited, the signs all pointed towards an economic downturn of the company. The case touches the areas of the company marked by red flags, which the students have to identify, and to explain what these red flags imply about the future of the company. |
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