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Are you asking why a massive accounting fraud scandal stings so bad? Or why they resorted to accounting fraud in the first place?

by eli 10y ago

LeifCarrotson 10y ago
No. Well, sort of - they suggest that the magnitude of the 'sting' will be $4 to $7 billion, which is obviously not a good thing. But this doesn't seem like that amount should sting all that bad to a company with the size and history of Toshiba. I mean, they had $50 billion in revenue last year! Are they really skating on such thin margins that they can't write off $5 billion without risking insolvency? To put it in human terms, if a judge gave a $10,000 fine to a college student or a high school student, it would be totally reasonable for them to be unable to pay. But if they gave the same $10,000 fine to an older adult, for whom that might be a still painful 10% of their annual income, you wouldn't expect the adult to need to declare bankruptcy. An adult who's been making $100k for 20 years or more who's responsible with their finances is likely to have $10k available in savings, should have at least double that much in an emergency fund, and will probably have many times more in home equity, investments, and a retirement fund. Sure, companies involved in accounting fraud probably aren't being terribly responsible with their finances, but the fact that they've existed for a century must mean they're not being stupid, right? I'm trying to get a start at understanding business finances, and (unfortunately) approaching it from a personal finance standpoint. It seems a lot of corporate 'wisdom' suggests the equivalent of paycheck-to-paycheck, and even trying to reach one step further towards payday loans with tricks like paying your suppliers on Net 30 terms that only start after your customer pays your invoice.
- slededit 10y ago
  Companies are not individuals. It doesn't help shareholders for the company to keep a large cash pile - investors would much rather take the money and reinvest it elsewhere. Massively profitable companies like Apple (and MSFT in its early days) could get away with this because their ROE numbers are already higher vastly higher than the rest of the market. But for most industries optimizing ROE is important. Its not really as risky as it sounds. A company can simply dilute itself and create new shares out of thin air and sell them to raise cash should their small buffer prove inadequate. A human can't do that. For whatever reason Toshiba considers it preferable to sell assets rather than create new shares. Likely because the scandal has depressed the stock price.

Are you asking why a massive accounting fraud scandal stings so bad? Or why they resorted to accounting fraud in the first place?

by eli 10y ago

Are you asking why a massive accounting fraud scandal stings so bad? Or why they resorted to accounting fraud in the first place?

LeifCarrotson 10y ago

No. Well, sort of - they suggest that the magnitude of the 'sting' will be $4 to $7 billion, which is obviously not a good thing. But this doesn't seem like that amount should sting all that bad to a company with the size and history of Toshiba. I mean, they had $50 billion in revenue last year! Are they really skating on such thin margins that they can't write off $5 billion without risking insolvency? To put it in human terms, if a judge gave a $10,000 fine to a college student or a high school student, it would be totally reasonable for them to be unable to pay. But if they gave the same $10,000 fine to an older adult, for whom that might be a still painful 10% of their annual income, you wouldn't expect the adult to need to declare bankruptcy. An adult who's been making $100k for 20 years or more who's responsible with their finances is likely to have $10k available in savings, should have at least double that much in an emergency fund, and will probably have many times more in home equity, investments, and a retirement fund. Sure, companies involved in accounting fraud probably aren't being terribly responsible with their finances, but the fact that they've existed for a century must mean they're not being stupid, right? I'm trying to get a start at understanding business finances, and (unfortunately) approaching it from a personal finance standpoint. It seems a lot of corporate 'wisdom' suggests the equivalent of paycheck-to-paycheck, and even trying to reach one step further towards payday loans with tricks like paying your suppliers on Net 30 terms that only start after your customer pays your invoice.

slededit 10y ago
Companies are not individuals. It doesn't help shareholders for the company to keep a large cash pile - investors would much rather take the money and reinvest it elsewhere. Massively profitable companies like Apple (and MSFT in its early days) could get away with this because their ROE numbers are already higher vastly higher than the rest of the market. But for most industries optimizing ROE is important. Its not really as risky as it sounds. A company can simply dilute itself and create new shares out of thin air and sell them to raise cash should their small buffer prove inadequate. A human can't do that. For whatever reason Toshiba considers it preferable to sell assets rather than create new shares. Likely because the scandal has depressed the stock price.