In Focus: Financial Accounting

Article retrieved from: http://www.cbc.ca/news/business/twitter-ipo-details-raise-questions-over-financials-bots-1.1912936

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Twitter is about to go through with its Initial Public Offering (IPO) to raise capital for the company. This is a risky investment considering that the company has only been making losses to date, their current debt stands at $418.6 million. The plus side of this IPO is that Twitter managed to triple their revenue to $316.9 million in 2012 and have a large data base of users. In a Financial accounting perspective, there is a possibility that the revenues could be overstated and debts understated to convince investors to purchase their shares. Twitter might have also deferred some debts over the next few years which are not reported but are still part of the losses they incurred.  In addition, considering that the amount of debt it has, they have limited amounts of free cash flow that can be used to grow the business. Twitter currently relies on credit from banks and private investors and if this IPO is not successful in raising enough capital for the company, they might continue to make losses. Investors should exercise caution before buying twitter shares.

Update/Further/Interesting readings:

Sceptical Investors: http://news.yahoo.com/ap-cnbc-poll-twitter-faces-skeptical-investors-051700470–finance.html

Wall Street Brokers push up twitter IPO targets: http://www.reuters.com/article/2013/11/01/us-twitter-ipo-analysts-idUSBRE9A010720131101

Twitter Indicators for stock market analysis: http://www.downsidehedge.com/twitter-indicators/