This practice by Company X is a matter of ethical and or legal concern. Window dressing is an act performed by a company to improve the appearance of its financial statement. The company engages in manipulating the financial statements so that they could show better financial position and performance (Sinha, 2012). Therefore, it is not an ethical way that companies should use to prepare their financial statement. When preparing financial statements, companies should ensure that they prepare them honestly and fairly (Sinha, 2012). In addition, window dressing is a legal concern since the company is practicing fraud.
I think that most all companies window dress their data. I believe that most companies would like to hide their liquidity problems or show a better financial statement to encourage investors or impress lenders.
Given the situation, Company X has the intention to delay payment to vendors. With this decision their cash position will look higher. Therefore, I would have to decline their loan request. Company X’s situation means that after they have paid vendors, they will remain with little money and this contradicts their claim of making much money. Therefore, if they are not generating much money, there is a high possibility that they would not pay the loan on time.
Sinha, G. (2012). Financial statement analysis. Place of publication not identified: Prentice-Hall Of India.
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