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Chapter 8. Earnings Tricks and Games: Ma... > Red Flag 11: A Company Grows Much Fa...

Red Flag 11: A Company Grows Much Faster Than Its Rivals with No Clear Explanation

This one goes in the “too good to be true” category of warnings. You have to be able to understand how a company can report sterling results while rivals in the same industry have been struggling. For example, WorldCom’s, Global Crossing’s, and Qwest Communications’ relatively high growth rates around the start of the millennium infuriated some competitors in the telecommunications industry because they couldn’t work out why they were lagging. Of course, WorldCom’s declaration of a massive accounting deception over the summer of 2002 and Qwest’s announcement in the autumn that it was restating at least $950 million of revenue and costs from swaps of network capacity with other carriers answered many of their rivals’ questions. Global Crossing, which operated a fiber optic network in 27 countries and filed for bankruptcy protection amid crippling debts, has also been investigated by a congressional committee looking at whether it used sham transactions to boost revenue and mislead investors.


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