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Ratios and Ethics

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Atlantis Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Andy, the owner of Atlantis, 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 January 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 Andy's actions?
Which ratios will be improved by accelerating these sales?
Would you advise Andy to proceed with this plan? Why or why not?

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On first glance, Andy's actions may be looked upon as cheating by some people because he is improving the financial ratios without increasing the cash while others may think of it as a misleading action. However, in my opinion, if the firm benefits financially from the sales acceleration, if he is actually increasing the overall sales by giving payment flexibility, which is like a ...

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