Channel Stuffing

  

No, we’re talking about an attempt to shop lift a lot of perfume here. (That's Chanel anyway...one "n.") We’re referring to companies trying to skew their earnings for a particular time period. In order to make expectations for a particular period (usually a quarter), a company might push customers to buy a bunch of stuff now and just leave it in inventory for later.

The company books a bunch of sales right away, goosing this quarter's revenue and earnings. All the analysts are happy, and the stock goes up. The problem is: the company just borrowed sales from the future. All the customers that stuffed the channel this quarter won't need to re-up as scheduled next quarter. Eventually, the company has to use other tricks to inflate their numbers or, somewhere down the line, book a really weak quarter. But by that time, maybe the executives in charge have already exercised their stock options and spent their bonus checks. Someone else's problem.

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Finance: What is inventory?2 Views

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Finance allah shmoop What is inventory Well it's Just stuff

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there in the sun is a dive bombing targets for

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the birds Yeah while their inventory to the car dealership

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the cars are inventory the loads of nose hair trimmers

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sitting on the shelves at the well appointed nostril fine

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store best nostril trimming store in the world Yet their

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inventory albeit kind of gross ish inventory especially after use

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the four thousand yards of denim cloth sitting in the

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weaving factory waiting for thirteen year old girls in thailand

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toe weave it all together to make levi's for the

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gap Yep that cloth is inventory It isn't finished inventory

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It's just a work in process not yet ready for

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prime time or a prime thigh or whatever But it's

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an asset for the company who owns it and it

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is held as inventory on the balance sheet Work in

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process right there at the balance sheet right there Okay

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And when that inventory is sold and turned into revenues

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it'll just become part of the expenses line on the

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income statement usually has cost of goods sold or caw

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Gse that's What people in the accounting bids say Cocks

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thie Inventory is a good but inventory is always good

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a hefty shock straight to the hunger And that hurts

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