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We only invest for clients in the net worth range of $100k+. Just go back and read the entire first sentence that you continue to quote: "Revenue is also cash

We only invest for clients in the net worth range of $100k+. Just go back and read the entire first sentence that you continue to quote: "Revenue is also cash - before expenses [they are collecting this amount]. I'm not suggesting that Groupon's 'operations activities' aren't responsible for pulling/keeping them in the red." ... clearly not a Merriam-Webster quote - rather my own; to describe a simple concept: Groupon makes money (see definitions: USD; cash) - potentially, these resources could be spent more efficiently. In regards to Mark-to-Market Accounting, an simple example could be for when a journal entry is made in/debit to 'Accounts Receivable' - you're right, this has not effect on the cash balance. So your point is valid, but contradictory. Because amounts under ‘Accounts Receivables’ are not considered revenues – assets (maybe, but still not exactly) - but certainly they cannot be called revenues. As receivables are earned, they are transferred to 'Cash,' under assets and now it’s both a revenue and cash. Also, companies rarely sit on receivables. Instead, they factor them (or borrow against them) and "Voilà!"... cash! The majority of business owners believe they can invest these amounts and make a higher return than they are being charged in interest. That all being said, I think your point there isn't very strong.

jacques_chester 15y ago
Thank you, this is a much better reply. The two objections I've seen to Groupon's accounting practices are: * They had that weird metric which miraculously showed them being wildly profitable, and * They have a long lag time for collecting actual cash, but still book the groupon cut as revenue in a given period. The reason people get anxious about the second point is because revenue isn't cashflow. Groupon has amazing revenues on its books, but cash-wise it seems to play things close to the line. It's a problem because it makes Groupon highly unpredictable. If a significant fraction of groupons begin to fail (and at any point in time the majority of Groupon's groupons have not been present cashflow) then Groupon is stuffed. And with only 3 years of operations, all of them exceptional and not steady-state in nature, it's hard to say what will happen. You say "Revenue is also cash - before expenses". That's still not correct. Revenue can be booked before cash, cash be taken that isn't revenue. Sometimes cash comes in advance. The key point is: Groupon can book revenues that aren't backed by cash, and they have done so aggressively. And given their apparently high costs and relatively small cash reserves, it's basically a smoke-and-mirrors act. They could borrow against their A/R, but it wouldn't be cheap given the factors outlined above. Whether they succeed or not still relies totally on a low bad-debts rate, regardless of what they can borrow.
- JacobIrwin 15y ago
  Right on.

jacques_chester 15y ago

Thank you, this is a much better reply. The two objections I've seen to Groupon's accounting practices are: * They had that weird metric which miraculously showed them being wildly profitable, and * They have a long lag time for collecting actual cash, but still book the groupon cut as revenue in a given period. The reason people get anxious about the second point is because revenue isn't cashflow. Groupon has amazing revenues on its books, but cash-wise it seems to play things close to the line. It's a problem because it makes Groupon highly unpredictable. If a significant fraction of groupons begin to fail (and at any point in time the majority of Groupon's groupons have not been present cashflow) then Groupon is stuffed. And with only 3 years of operations, all of them exceptional and not steady-state in nature, it's hard to say what will happen. You say "Revenue is also cash - before expenses". That's still not correct. Revenue can be booked before cash, cash be taken that isn't revenue. Sometimes cash comes in advance. The key point is: Groupon can book revenues that aren't backed by cash, and they have done so aggressively. And given their apparently high costs and relatively small cash reserves, it's basically a smoke-and-mirrors act. They could borrow against their A/R, but it wouldn't be cheap given the factors outlined above. Whether they succeed or not still relies totally on a low bad-debts rate, regardless of what they can borrow.

JacobIrwin 15y ago
Right on.