Lesson 9 of 9 · All lessons in this module
- Revenue recognition: core principle and the five-step model
- Revenue recognition in practice and what it means for analysisVideo lesson
- Expense recognition and capitalising versus expensing
- Capitalised interest and capitalised development costsVideo lesson
- Non-recurring items, discontinued operations and accounting changesVideo lesson
- Basic EPS and the weighted average number of sharesVideo lesson
- Diluted EPS: if-converted, treasury stock and antidilutionVideo lesson
- Common-size income statements and margin analysis
- Integrated cases: capitalising, restated results and gross versus net revenue
Lesson 9 of 9 · 16 min
Integrated cases: capitalising, restated results and gross versus net revenue
Three accounting choices change reported profit and ratios without changing the business: capitalising a cost, restating results for a new policy, and presenting revenue gross or net; the analyst's job is to put the numbers on a common basis and say what each choice flatters.
In short
- Capitalising a cost lifts early profit, early ROE and operating cash flow (the outlay moves to investing); total profit and total cash over the asset's life are unchanged.
- A restatement table shows *as previously reported*, *adjustment* and *as restated*; compare restated with restated to judge growth and margins, never restated with originally reported.
- Gross presentation inflates revenue and shrinks margins; net presentation shrinks revenue and lifts margins; profit and cash are identical.
- Rank revenue policies by timing: the one that recognises less, or later, is the more conservative; adjust when the data allow, otherwise explain which ratios move.
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