Join Jim Stice for an in-depth discussion in this video Valuing a Chinese state-owned telecom company, part of Running a Profitable Business: Revenue Recognition.
- To illustrate the usefulness and meaning…of the price-to-sales ratio, let me show you…a little case that we do in our…financial reporting classes.…This case is based on an interesting event…in China in 2008.…First, some background.…The large telecommunications companies…in China are majority-owned by the Chinese government.…As a result, they are called…state-owned enterprises, or SOEs.…In early 2008, there were six large…state-owned telecommunications companies in China.…The Chinese government decided to restructure…the industry, creating three companies…out of these six.…
The restructuring was designed to create…three large competitors, each with a…large base of both mobile phone customers…and old legacy fixed-line customers.…An interesting element of this restructuring…was that one of the companies, China Unicom,…was buying another Chinese SOE, China Netcom.…The price was set at 165 billion yuan,…the Chinese currency.…Now at first you might think it…doesn't matter what the price is, because…with both these companies being owned by…
But without recognizing revenue, a company can't hope to report any profit. Accordingly, company management is typically under great pressure to recognize revenue as soon as possible. Want to understand these concepts better? Join professors Jim and Kay Stice as they introduce the theory, practice, and implications of revenue recognition. Together they demonstrate how this seemingly innocent accounting topic can turn a reported profit into a reported loss, sometimes with multibillion dollar implications for company values.
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- Defining revenue recognition
- Timing revenue recognition
- Understanding multi-element transactions
- Valuing companies
- Reviewing the great revenue frauds and scandals of history