Big bath

Taking every possible charge at once, usually in a year that is already lost or in the first year of a new chief executive. Writing down ₹250 crore of goodwill, ₹180 crore of inventory and ₹120 crore of receivables together makes a ₹550 crore loss, and it clears the deck.

Its logic is that one very bad year costs less than three mediocre ones, and that future profits are higher once the assets carrying future charges have gone.

Watch what happens next. Inventory written down to a low value sells later at a fatter margin, receivable provisions set generously can be released, and where plant was written down as well, depreciation falls; the goodwill write-off only removes the risk of a later impairment. None of it has anything to do with trading. A new management team that inherits a bath and then reports a rapid recovery is partly reporting the bath.

Rebase the comparison. Measure the recovery against the pre-bath year.