Round-trip transactions involve selling an asset to another company with an agreement to repurchase it in the future, increasing apparent sales and revenue. However, it can be difficult to determine actual sales and can create financial difficulties. Some regulatory agencies consider it misleading to count revenue from these transactions.
Sometimes known as round-trip transactions or by the fanciful designation of Lazy Susans, round-trip is a strategy in which an asset is sold to another company with the agreement that the original owner will repurchase the asset at some point. moment in the future. This process is sometimes used as a means to increase the apparent amount of sales and revenue generated by the seller during a specific financial period. Although it is a relatively common process, not everyone in the financial community considers it an appropriate method of doing business.
Round trips typically involve the sale of an asset that is not essential to the core operation of the business. Since the asset is more or less unused, the temporary sale strategy will not affect the function of the business in any way. It will allow the business to count the proceeds from the sale as part of the revenue that is generated for the period in which the transaction takes place. As a result, the company can claim higher sales volume, a fact that will likely attract more attention from investors and raise the company’s public profile among consumers.
The key to the back and forth process is the repurchase agreement for the sold asset at some point in the future. Often the repurchase is for the same asset, although in some cases, an asset of similar type and value may be substituted. In terms of the repurchase price, the original owner may pay the same amount that was accepted for the initial sale, or possibly pay slightly more, depending on the terms agreed upon by the two companies.
There are dangers associated with using the round trip. One is that a business can become so involved with this type of activity that it becomes extremely difficult to determine what portion of the revenue generated is from actual sales and what is generated through the use of Lazy Susans. In addition, the buyback aspect of the strategy can sometimes create financial difficulties for the business that exceed any benefits derived from the original sale. Some investors choose not to deal with companies known to engage in frequent back and forth as a matter of personal conscience.
Many different types of companies have made use of round trips in the past. Several manufacturing companies have become involved in this type of asset swap, as have many energy trading conglomerates. In recent years, prominent Internet providers and related companies have also used this type of financial strategy. This has led some regulatory agencies, such as the United States Securities and Exchange Commission, to determine that counting revenue from these types of transactions among sales figures is misleading and therefore incorrect.
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