Net Income as a standard for investors
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Net income of the organization is the standard by which many investors and lenders use to gage the success of the organization. Discuss the reasons why this figure can be deceiving and how the accounting profession has tried to structure the income statement to make this decision process more accurate. Is net income a standard for investors?
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The expert examines the net income as a standard for investors. The reasons why this figure can be deceiving and how the accounting profession has tired to structure the income statement to make this decision process more accurate are determined.
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STEP 1
1. Net income can be deceiving because net income as a percentage of capital employed may be different for companies even though the net income may be the same.
2. Net income may include income from sources other than operating income. For example, it may include interest from securities.
3. Net income may be manipulated by treating sales of the current year as the sales of the next year or treating the sales of the next year as the sales of the current year.
4. Net income can be deceiving because there may be a change in the manner in which items like depreciation or ...
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