Companies That Find Themselves with Poor Earnings in a Certain

question 37

Essay

Companies that find themselves with poor earnings in a certain year will often decide to take a "big bath".
Required:
Explain what a "big bath" is and the motivation behind it.Why does this type of earnings management "tread very close to the line of ethical reporting"?

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Definitions:

Similar Stocks

Stocks of companies that operate in the same industry or sector and have similar characteristics in terms of revenue, profitability, and business models.

Market Price

The rate at present for engaging in buy or sell activities for a service or asset.

Preferred Stock

A class of ownership in a corporation with a fixed dividend that is paid out before dividends to common stockholders.

Preemptive Rights

A shareholder's right to buy new shares issued by a company in proportion to their existing shareholding, before the shares are offered to the public.