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KJM Company: Ethical implications of accelerating sales

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KJM Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Ken, the owner of KJM, has decided that he should try to accelerate some sales to improve his financial statement ratios. He has called his best customers and asked them to make their usual purchases by December 31. He told them he would allow them until the end of February to pay for the purchases, just as if they had made their purchases in January.

What do you think are the ethical implications of Ken's actions?

Which ratios will be improved by accelerating these sales?

Would you advise Ken to proceed with this plan? Why or why not?

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The solution provides a paragraph for each of the questions which express the opinions of the writer.

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What do you think are the ethical implications of Ken's actions?

Ken's actions can be seen like a cheat by some people because he is improving financial ratios without increasing the cash. Others may think of this as a misleading action but in my opinion since he is actually increasing the overall sales by using payment flexibility like a promotion and attracting more customers then it is in usual, he ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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