Hi Victor,
On the case study on OKP, I dont quite understand how is the book order inflated with the statement below:
“The conventional way of doing the order book is to reduce its amount when revenue is recognized according to a project’s percentage of completion. However, OKP’s internal policy is to remove a project from the order book when it is 100% completed. This means the order book figure is inflated and makes guidance on future revenue and profit difficult to gauge.”
Thank you.
Best regards,
Ken Liang
Hi Ken,
An order book of $500m means that the company is expected to record $500 in revenue in the near future. In the normal case of reporting, when a company completed $100m in order book, they should be reporting $400m for the next reporting. The case with OKP was like this:
OKP’s order – $500m order book (this is not actual figure, I am using as example)
Number of project – 2 (First project $200m while other project $300m. Total order book $500m)
For instance, if OKP completed half of project 1($100m) in 1Q2020 so instead of reporting $400m order book in 2Q2020, they reported $500m. The reason was because they will remove project 1 order book only when fully completed at $200m. Hence, in such cases, the management is very aggressive with their reporting.
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