Analysis of Research
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1. Give an example of analysis of research and development expenses being important in assessing and forecasting earnings? What are some concerns in analyzing research and developing expenses?
2. What is the purpose in recasting the income statement for analysis? Give an example.
3. Where do we find data necessary for analysis of operating results and for their recasting and adjustment?
4. What happens to the reliability of current and pro forma statements when significant use is made of write-offs and depreciation methods?
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1. Give an example of analysis of research and development expenses being important in assessing and forecasting earnings? What are some concerns in analyzing research and developing expenses?
In a pharmaceutical firm the analysis of research and development expenses are important in assessing and forecasting earnings. The reason is that research and development expenses form an important cost of the company. The company must have cash flows to pay for the research and development expenses, The concerns in analyzing research and development expenses are the allocation of the expenses to each product, the projection of expenses during the future years and the compromise of confidentiality of the company. An important concern is that a company may temporarily suppress or inflate research and development expense to increase or decrease the net income of a company.
2. What is the purpose in recasting the income statement for analysis? Give an example.
There are several purposes why the income statement should be recast. One ...
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