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
Finance allah shmoop What is inventory Well it's Just stuff
you have for sale in one form or another An
auto dealer Well all those cars she has sitting out
there in the sun is a dive bombing targets for
the birds Yeah while their inventory to the car dealership
the cars are inventory the loads of nose hair trimmers
sitting on the shelves at the well appointed nostril fine
store best nostril trimming store in the world Yet their
inventory albeit kind of gross ish inventory especially after use
the four thousand yards of denim cloth sitting in the
weaving factory waiting for thirteen year old girls in thailand
toe weave it all together to make levi's for the
gap Yep that cloth is inventory It isn't finished inventory
It's just a work in process not yet ready for
prime time or a prime thigh or whatever But it's
an asset for the company who owns it and it
is held as inventory on the balance sheet Work in
process right there at the balance sheet right there Okay
And when that inventory is sold and turned into revenues
it'll just become part of the expenses line on the
income statement usually has cost of goods sold or caw
Gse that's What people in the accounting bids say Cocks
thie Inventory is a good but inventory is always good
Of course as many a customer has learned after taking
a hefty shock straight to the hunger And that hurts
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The Federal Trade Commission (FTC) exists to prevent fraudulent or deceptive trade practices. They're all about protecting Joe Sixpack.