If publicly held companies can leverage a legal means of positively influencing investor and analyst perceptions as to their financial condition, then why not?

Take, for example, the order in which companies present financial statements. Maybe you’ve never thought about that. Indeed, it’s likely that CFOs of mature firms simply keep the order the same year after year without making a conscious decision on the matter.

But in studying the 2015 annual reports of 400 companies, the Georgia Tech Financial Analysis Lab observed distinct patterns that suggest reasons for financial-statement placement order.

Among the 400 companies, 68% presented the balance sheet first and 31.75% led off with the income statement. That left a single company from the data set — Amazon.com — with the maverick strategy of putting the cash-flow statement first.

Amazon has presented cash flow first for each fiscal year since 2003. The Management’s Discussion & Analysis (MD&A) section of the company’s annual report for that year included, for the first time, the following statement: “Our focus is on long-term, sustainable growth in free cash flow.”

Before 2003, Amazon had placed the balance sheet first among the financial statements.

Also that year, Amazon for the first time moved the “Liquidity and Capital Resources” section of the MD&A ahead of the “Results of Operations” section.

Charles Mulford

Charles Mulford Financial statement

Thus, it’s apparent that Amazon puts its cash-flow statement first to highlight the company’s priority on its cash flow, according to Georgia Tech accounting professor Charles Mulford and MBA student Biro Condé, authors of a new paper on financial-statement placement order.

In fact, a main finding of the research was that companies use the placement order to emphasize their strong suits.

To create the sample of 400 companies, the authors used data for U.S. public companies provided by Compustat from Wharton Research Data Services. Each company was in one of four revenue quartiles: greater than $30 billion; $1 billion to $2 billion; $300 million to $500 million; and $50 million to $70 million. The first 100 companies listed in the database for each of those revenue ranges were included in the study.

Among the 400 companies, those putting the income statement first were larger than those starting off with the balance sheet, in terms of both revenue (median $30.9 billion vs. $319 million) and assets (median $16.6 billion vs. $1.2 billion).

Those emphasizing the income statement were also more profitable, reporting higher median return on equity (12.8% vs. 7.3%) and net margin (6.4% vs. 5.1%). Their operating cash margin was higher as well (12.2% vs. 11.4%), and, attesting to their larger size and debt-service capacity, they reported higher financial leverage (expressed as the ratio of total assets to equity, 283% vs. 243%).

In the largest quartile of companies, 64 of the 100 companies reported the income statement first. In the second quartile the corresponding number was 45, followed by 14 in the third quartile and 4 in the fourth quartile.

Why do the findings shake out that way?

The authors said they interviewed several partners and senior managers at Big Four accounting firms. “Among these experienced accountants there was a general consensus that large public companies tend to place the [income statement] first, given the focus of the investment community on earnings,” the paper stated.

“Smaller public companies and private entities tend to put the balance sheet first,” the paper continued, “as though the primary focus was more on a fiduciary or stewardship responsibility for the resources trusted to management.”

The authors were also interested in how start-up companies, where there are no prior-year financial statements, might decide the placement order. Mulford and Condé looked at the S-1 registration statement for the upcoming IPO of Snap, which placed the balance sheet first — followed by the income statement, the statement of shareholders’ equity, and the cash-flow statement.

“Snap’s placement order appears to be consistent with the view that because it has such significant losses and is consuming so much cash, the company would rather put more emphasis on its balance sheet,” the authors wrote.

In conclusion, they noted, the results are relevant to CFOs, who are tasked with the responsibility of presenting the financial statements.

“The decision on financial statement placement order may have been made years or even decades earlier,” the authors stated. “It is likely a decision that has not been reexamined since it was originally made. Maybe it should be. As companies grow and become more established, there appears to be a decided emphasis on placing the [income statement] first.”

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