medium · Corporate Credit Analysis fsa
A software company capitalizes $40 million of internal development costs rather than expensing them.
For a credit analyst, how does this accounting choice affect reported EBITDA and the quality of earnings assessment?
- EBITDA is inflated, and free cash flow conversion is artificially weakened
- EBITDA is inflated, but Net Worth is overstated by soft capitalized intangibles
- EBITDA is unaffected, but Net Income is higher due to lower reported expense
- EBITDA is lower, but the balance sheet is strengthened by the newly capitalized asset
Sign up free to see the explanation and track your rank →
More Corporate Credit Analysis fsa practice
- What is the company's Funds From Operations (FFO)?
- If revenue is $500M, variable costs are 60% of revenue, and fixed costs are $100M, what is
- What is the company's Days Sales Outstanding (DSO)?
- What is the company's Free Operating Cash Flow (FOCF)?
- What is the company's Current Ratio?
- What is the most likely credit implication?
- What is its Free Operating Cash Flow (FOCF) conversion rate from EBITDA?
- Which firm exhibits higher quality of earnings?