Assessing Earnings Quality: Nuware, Inc.

Case Solution

Paul Simko
Darden School of Business ()

Associate Jack Hereford has to review the quality of Nuware Imports earnings. Your specific role is to rate Nuware’s accounting and valuation policies as aggressive or conservative, and then to recalculate the company’s current results as if you had applied the accounting policies of your closest colleague. Various adjustments are required including inventory, accounts receivable, fixed assets, stock options, investments, and annuities. Through this exercise, you will see the interaction of various discretionary accounting practices applied by management, how to derive the monetary implications of this discretion, and how to properly assess the profitability of one company against another.

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