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Microsoft’s $26 billion deal: Is LinkedIn’s Creative Accounting Too Good To Be True?

In today’s culture of profit padding and fraudulent facts, the idea of using “creative accounting” to build up a company’s financial position is no new thing. However, with corporate controls and oversight legislation ever changing, the ethical and legal lines will inevitably be blurred.

The newest issue walking this fine line is the $26 billion acquisition deal between Microsoft and LinkedIn. The issue lies in the classification of LinkedIn’s employees’ stock-based compensation. Paying employees in stock is technically a corporate expense, yet over the past few years, LinkedIn has been excluding these expenses from earnings because they are non-cash.

While many Silicon Valley tech firms are facing greater scrutiny over this practice, it continues to be the preferred compensation tool to attract top talent, not to mention a means to flatter their stock price when times are tough.

Vox technology blog explained that, “According to generally accepted accounting principles, LinkedIn took a modest $46 million loss in the most recent quarter. But like many technology companies, LinkedIn prefers an alternative method of computing profits that excludes the value of employees’ stock-based compensation. This measure shows the company earning a hefty $99 million in profits.”

Balance sheets and accounting aside, the lucrative deal may help bolster the uncool reputations of the companies and fill in the missing “link” in Microsoft’s growing portfolio.

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By |2023-03-11T17:16:36+00:00June 23rd, 2016|Blog|0 Comments
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