Big Bath

  

Categories: Accounting, Education

The titles of several famous Raymond Chandler novels are euphemisms for death. At the top of the list, there's The Long Goodbye and The Big Sleep. (Poodle Springs less so, but who really knows?)

The Big Bath kind of falls into that category.

Think of the guy in The Godfather II, who, after seeing his brother in the audience of a Congressional hearing and having a seemingly anodyne conversation about the Roman Empire, decided to slit his wrists in the bath (it makes sense in the context of the movie). That's a Raymond Chandler-style Big Bath.

Now imagine the guy in The Godfather II is a company. That company is having a bad year. Rather than do everything they can to bolster the terrible results, management instead turns into the skid. They take write downs. They accelerate losses. They do everything they can to make the current period look as bad as possible.

This has two effects. If they pick the right moves, they can clear the decks and move more profitably into the future. But secondly, even if this doesn't entirely work, at least future results will look stronger compared to the "big bath" they took already.

So, unlike the Godfather guy, the plan is to get up and start walking around again. But at the time, it feels about the same.

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