How to Think Like Benjamin Graham and Invest Like Warren Buffett

Making(Up)Numbers 159

an d disclose that these resulte dfrom a problem with the “collectibil-
ity” of our accounts receivable.

adjusting reserves and

treatment of returns

In the financing arm of our business, we inten dto re duce the amount
of reserves we recor dfor delinquent an duncollectible accounts by
reporting them as current. To do so, we will in some cases simply
extend the due dates of our customers’ obligations. In others, we will
assume that we can repossess the items secure dby these delinquent
loans whether or not that is feasible. This enables us to recor dfar
lower reserves in our allowance for credit losses, thus increasing our
net income.
Similarly, in all of our businesses, we will recor dcustomers’ re-
turns of merchandise as purchases of goods rather than charging
them against our reserves for returns. Another benefit of this new
policy is to increase our receivable turns, making our operations look
speedier and more efficient.

recording the value of

market share as an asset

A hot tren din the marketplace for tra ders an dspeculators is to assign
a value to Internet companies base don the percentage of their pro d-
uct market their sales levels represent. This is necessary to justify the
stratospheric prices being pai dfor stocks of these companies in initial
public offerings an din exchange tra ding. After all, most of these
companies do not generate any earnings or even positive cash flows.
Staying ahea dof the stampe de, we are moving one logical step further
by listing the value of this market share on our balance sheet as an
asset.
Every quarter we will gauge the amount of value the market is
giving us base don our market share an drecor dthat in an asset ac-
count calle dmarket share. This may seem like a “belts-an d-
suspenders” policy given that our other New Accounting changes will
enable us to report actual earnings an dactual cash flows which oth-
erwise woul dbe negative. Nevertheless, we believe that this is what
sharehol ders an dmarket players want, an dwe are just trying to co-
operate.