Accounting trade

Having said that, not all managers and accountants are as straight as we would like, so here is a list of what you can do to avoid being taken for a ride:


Pay close attention to the notes to the accounts. Many analysts read the accounts backwards working from the notes, through the cash flows, balance sheets and profit and loss until finally reaching the points that were supposed to impress (and possibly mislead) them at the front of the annual report and accounts. Reading the notes first will highlight issues tucked away, such as goodwill, amortisation, exceptional items and capitalised interest that will not be presented in the profit and loss, balance sheet and cash flows. When you reach the main accounts you will have the information to allow you to make adjustments so that ratio analysis is more meaningful. When reading the accounts ask yourself which numbers you would manipulate if you wanted to bias the figures. Get data from other sources. Brokers' reports can give a critical appraisal of the company's accounts. You can obtain information about the directors' past lives by, say, conducting an Internet search — tap their names into a search engine and see what comes up. Industry analyses are available from the specialist websites ICC (www.icc.co.uk) and Dun and Bradstreet (www.dnb.co.uk). Focus on cash. Being creative with cash flow figures is much more difficult than being creative with profits and balance sheets. Be sceptical about companies that show high and rising profits with low cash flow. A very useful measure is the cash return on capital employed in the business. It suffers far less from biased accounting than earnings-based measures.


Check accounting policies. If accounting policies (e.g. on depreciation) have changed from the previous year then watch for the effect on profits. Ask questions such as: does the reduction in depreciation boost profit artificially, or is it justified? If there is not enough information in the accounts then you could ring the investor relations department of the firm to ask for an explanation of the accounting policies.

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In a sense, Nokia's segmentation by lifestyle approach has been to the previous generation of mobile phones what the graphical user interface (GUI) of Micro-soft's Windows was to the command line programming of the old DOS computer systems.. The marketing of the mobile phone income tax slab has also been helped along with new retail strategies aimed at conveying a sense of user friendliness to consumers who might otherwise be wary of a wireless device. In particular, it was the new entrants in the mobile phone sector that adopted simple and fun names like 'Orange', 'Fido' and 'T-Mobile' as a way of making the mobile more approachable for the average consumer. Advertising campaigns stayed away from emphasizing the technology as such, tofocus on lifestyle and to depict the mobile phone as a way to connect vvith friends and family in a hectic world. Some marketing campaigns even adopted organic forms and themes to complement the rounded shapes of the new Nokia phones.

The popularity of prepaid The digital technology of the second generation networks also permitted mobile operators for the first time to launch prepaid or 'pay as you go' service plans. Before this business model was introduced, mobile phone service plans tended to be based on a monthly contract that required customers to make a significant financial commitment to one operator. For many potential customers, it was this contract and associated credit check that discouraged them from acquiring service. The new digital cellular systems however, enabled mobile operators to measure telephone calls in such a way that air time credit could be pre-sold in standard increments or 'top-ups' such as $10 or $20. In effect, the prepaid business model offers something not unlike a mobile pay phone, where the customer pays in advance for credit which it then debited as it is used.